💰 A Different Approach to Building Your Growth Budget - #13

Hey there!

I recently came across an interesting module on Reforge (specifically the Product Marketing module) about how to build a budget. Over the years, I've seen various methods for constructing an annual budget, whether it's for paid media investments, offline marketing, events, freelancers, and so on. The approaches tend to be either overly detailed or way too high-level.

The downside to an overly detailed approach is that it leaves little room for error and consumes a lot of time trying to make a financial model fit each initiative. For instance, if you have 30 initiatives throughout the year, estimating the leads, conversion rates, CAC, payback time, etc., can become overwhelming.

On the other hand, if you take a high-level approach, you might end up spending too much on initiatives that don't require it or too little on those that need more funding to succeed.

In this post, I share a framework that covers the following:

• Total Investment Amount

• Rainy Day Fund and Fixed Expenses

• Initiative Categorization by Tiers

• 4 Strategic Emphasis Archetypes

• GTM Plan and Objectives

Let's dive into it.

How Much to Invest in Total?

The first question to answer is: how much should I invest in total?

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This model is ROI-based (Return on Investment), so the total amount should always be based on a revenue forecast. We can have two scenarios, one aiming for a low ROI (3x - perhaps because the market is saturated or there are few organic channels to leverage) and one for a high ROI (5x - because the market is new or you have plenty of organic channels to leverage).

A simple revenue forecast might look like this: (missed images when migrating from Ghost )

And the budget scenarios based on ROI would be as follows: (missed images when migrating from Ghost )

Rainy Day Fund and Fixed Expenses

Once we've decided on the total budget (whether high-end or low-end), we need to allocate funds for two items: the Rainy Day Fund and fixed expenses.

For the Rainy Day Fund, I recommend setting aside 3% of the total budget. This amount is reserved for unforeseen events, initiatives that need more funding, or unexpected setbacks. It saves you from having to renegotiate with stakeholders for additional budget.

Fixed expenses depend on your business type, but in this example, I've included costs for always-on paid media, creative design, and freelancers.

Categorization by Tiers

With these items set aside, we can break down the macro-initiatives to be executed by quarter. There can be several, but for simplicity, I've included one initiative per quarter. We also need to categorize each initiative into its respective Tier, where P1 = Game Changer, P2 = High Potential, and P3 = Normal Impact. This way, we can better distribute the budget to those with the highest potential impact.

Here's the formula for distribution by Tiers:

• Total budget = 10P1 + 3P2 + P3

Using this formula, the budget for macro initiatives is distributed like this:

As you can see, Initiatives 1 and 4, which are in the P1 tier, get a much larger budget than the others.

4 Strategic Emphasis Archetypes

Once we have the total budget per initiative, we need to categorize them into one of the "4 Strategic Emphasis Archetypes." This will serve as a benchmark for dividing investment over time and by sub-items (research, creative, awareness, acquisition).

Here are the recommended percentages for each archetype, the investment splash over time, and the investment by sub-item:

• Pain-point based: Positions the product as the best solution to an existing pain in the market. Recommended investment: 10%-15% for research, 15%-20% for creative, 20%-25% for awareness, and 50% for acquisition. Investment splash over time: 40/30/30 (across 3 months).

• Audience based: Positions the product as the best solution for an underserved audience. Recommended investment: 20%R, 10%C, 10%AW, and 60%ACQ. Investment splash over time: 33/33/33 (over 3 months).

• Differentiator based: Positions the product as the best alternative among others in the market. Recommended investment: 20%R, 25%C, 40%AW, and 15%ACQ. Investment splash over time: 50/25/25.

• Change based: Positions the product with a leader guiding a market in transformation. Recommended investment: 5%R, 30%C, 50%AW, and 15%ACQ. Investment splash over time: 50/25/25.

While these are the recommended percentages and investment splashes, adjustments are normal based on your company's stage and total resources.

Here's an example of a "Change Based" initiative with its investment by sub-items and splash over time: (missed images when migrating from Ghost )

GTM Plan and Objectives

Lastly, let's define the Go-To-Market strategy with the objectives for each initiative, the respective audiences/strategies, and the marketing activities accompanying the execution. The idea here is to make a quantitative estimate of the top-of-the-funnel volume you need, with conversion rates by channel (based on historical data or benchmarks), and see how close this estimate is to the set objectives.

Your detailed plan should look something like this: (missed images when migrating from Ghost )

And that's it! Now you have an ROI-based budget constructed bottom-up, with macro initiatives categorized by Tiers and in their strategic emphasis archetype, a division by sub-item, a time-based investment splash, and a detailed GTM strategy for each initiative.

I believe building a budget is more art than science, and it depends a lot on your past experience investing in similar channels or initiatives. I hope this approach helps you better back up your budget with different stakeholders and have clear objectives and tasks when implementing each initiative.

If you'd like me to share the template I created as an example, message me on LinkedIn.

🦉 Quote of the Week "Whenever you find yourself on the side of the majority, it is time to pause and reflect." — MARK TWAIN (from Timothy Ferriss, The 4-Hour Workweek)

That's all for today! If you liked this, let me know in the feedback below. If not, tell me too. :)

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See you next week!