It makes sense to start at the top and work your way down once the company budget is set for the year.

The budget pins the dollar figure a company wants to grow by— from this amount of revenue to this amount—within a year. The CEO, CFO, and CMO care about that revenue number a lot.

It’s their core business objective (CBO).

As a savvy marketer, you take that revenue number and math it down to granular, quantifiable marketing efforts.

When you do this, it’s easier to defend your position when the CEO or the CFO asks which ideas (from your total portfolio of marketing investments) you’re most confident about.

Oh shit 💩

The answer is the ones that add impact up the waterfall to the revenue or profitability goal for the year.

We’ll walk through the Math of Marketing and show you how to figure out what needs to be true (the actuals) to hit your company target.

It starts by looking at the macros: the biggest levers. Then we’ll look at the mesos (the middle layer) and, finally, the micros.

The first question to ask is a two-parter: What By When?

1. What’s the business goal? (that we can measure)
2. When does this goal need to be achieved?

In our example, the company CBO is to grow from $15 million to $20 million in one year.

Revenue goal: increase revenue by $5 million.

You have a revenue target of $5 million. But…

What percentage of that goal does marketing own? 🤔

Sales will contribute to hitting that $5 million target, and same-store growth will contribute from a customer success perspective. But what sliver of the pie is marketing in charge of?

In our example, it’s 50% of 5 million, or $2.5 million.

Cool.

Next, look at your average customer value or average contract value—how much your company makes from one customer.

If it’s $50,000, like in our example, what is the gross margin goal? What needs to be left over? You can’t forget the cost that goes into

1. Getting that lead
2. Servicing the shit out of that lead

That factors into customer acquisition cost, or CAC ceiling—the max amount you’re willing to spend to get a new customer.

In our example, the CAC ceiling is 25% of the ACV, so we can spend $12,500 to acquire a customer.

Sorted.

Now look at the mesos.

We’re halfway down the waterfall now.

From the top of the waterfall, we know the average customer value (ACV) is $50,000, and the revenue goal for the marketing department is $2.5 million.

So how many customers will bring in $2.5 million this year?

Divide $2.5 million by the ACV of $50,000.

We need 50 customers a year.

What about quarterly and monthly?

• Divide 50 by four to get the number of customers per quarter (50/4 = 12.5). Round up since you can’t have half a customer. We need 13 customers per quarter to hit our $2.5 million goal.
• Divide 50 by 12 to get your per-month number (4.2). Round up to 5 customers per month.

Now, how much will it cost to get those 50 customers?

That’s the budget you need.

Multiply your CAC ceiling (the max amount you’re willing to spend to get a customer) by the number of customers you need to hit your revenue goal.

$12,500 CAC * 50 = $625,000 budget

It will cost $625,000 to add 50 customers to the pipeline. That’s how much budget you need to hit the $2.5 million goal.

See how that’s defensible?

So when you hear, “You need to double the volume of our pipeline/CRM sales stage/revenue, but you’re not getting any more marketing budget,” you can call bullshit.

You have the math you need to defend your goals against budget.

Figure out the quarterly and monthly budget, too, so you understand pacing toward goals over time. In our example, marketing needs $52,000 monthly to hit the $2.5 million revenue goal.

Huzzah.

You have your budget. Now figure out the SQL close rate and the cost per SQL ceiling. And by SQL, we mean the last CRM stage before closed/won.

How many of your sales-qualified leads (SQLs) turn into customers?

In our example, it’s 25%. Or, for every 4 SQLs, one converts into a customer.

Divide the CAC ceiling of $12,500 by 4, and you get $3,125.

That means your cost per SQL ceiling is $3,125.

You’re already down to the micro stage, which is the MQL stage (or whatever you call the prerequisite stage of the SQL).

Welcome to the bottom of the waterfall.

In our example, 50% of marketing qualified leads (MQLs) turn into SQLs, so divide $3125 in half.

Your cost per MQL ceiling is $1562.50.

Keep waterfalling down to the stage before MQL. In our example, that’s the lead/demo stage, and our conversion rate here is 10%.

10% of $1563 is $156.

The cost per lead ceiling is $156.

And if the click rate is 1%, then the cost per conversion is 1% of $156, which is $1.56.

Now you know the cost of every part of the journey that gets you to your marketing goal of $2.5 million.

But what should you focus on first?