How to Build Your First Marketing Budget

Your company's reached an exciting milestone: you've shown traction, gained funding, and now it’s time to scale your business. 

For your sales and marketing efforts, that means you have to figure out how to move beyond just founder-led sales to a formal and repeatable sales and marketing model. That's a fantastic problem to have, but it comes with a tough next step: building your first real marketing budget. For many founders, this can feel uncertain. How do you set a marketing budget that will generate the growth you need, without wasting money when every dollar counts?

Below I’ll show you the frameworks I use with my clients to help them build their first marketing budget. These formulas offer a structured process for creating a logical, data-driven expense plan to help allocate funds and measure success. We’ll discuss how to calculate your budget, what core components your budget must cover, and the best practices for managing your investment for maximum ROI.

The role of a sales & marketing budget

It's common for early-stage founders to think of marketing as an expense. But marketing isn’t a cost center, it’s a revenue generator. Your marketing budget is the investment that builds a predictable system for customer acquisition. It's how you move from relying on network and hustle to creating a consistent pipeline that delivers qualified, sales-ready leads month after month.

A well-planned marketing budget directly impacts revenue by funding activities that build awareness, generate demand, and shorten the sales cycle. It's an investment in acquiring customers and increasing their lifetime value (LTV).

Plus, when you present a well-reasoned marketing budget to your investors and other stakeholders, you're demonstrating operational maturity. You're showing them you have a credible, data-informed plan to turn their capital into revenue, hit critical growth milestones, and increase the value of the company. It proves you’re not just a founder with a great idea, but a CEO building a scalable enterprise.

The science of spending: Calculating your budget

Building your budget is a structured, logical process. Since you don't have historical marketing data, the first step in using the models below is to establish strategic assumptions based on your business goals. These won't be perfect, but they will provide a logical starting point that you can test and refine.

Method 1: Percentage of operating budget

This is the most common starting point for establishing a budget range. For growth-stage B2B companies, the percentage spent on sales and marketing is often higher than for established corporations because they have to build brand awareness, educate the market, and create momentum from scratch.

Establishing your target budget percentage: 

Research from sources like the Gartner CMO Spend Survey indicates that B2B product companies in a growth phase should invest 15-20% of the total operating budget in sales & marketing (S&M) to build brand equity and capture market share. This level of investment is required to create momentum from a low base and compete effectively.

The formula:

1. 1. Determine your total annual operating budget.
   2. Multiply that number by 15-20% (0.15 to 0.20) to establish your S&M budget range.

Method 2: The ROMI-based approach

This method uses your target Return on Marketing Investment (ROMI) to determine a budget. It directly connects your spending to a revenue goal.

Establishing your target ROMI:

While a 5:1 ROMI is a common goal for mature companies, a more realistic target for a startup's first year is 3:1 (meaning for every $1 spent, you generate $3 in revenue). This accounts for foundational investments in brand and infrastructure that have a delayed return.

1. 1. Define revenue target: What is your annual recurring revenue (ARR) goal?
   2. Set target ROMI: A ROMI of 3:1 or 2:1 is realistic for a first-year startup. In later years, once the foundations and systems are built, a target ROMI of 5:1 is considered a strong return.
   3. Calculate budget: Divide your revenue target by your target ROMI.
      • Example: $1,000,000 Revenue Target / 3 = $333,333 S&M Budget.

Method 3: The LTV-based customer acquisition model

This model uses the lifetime value (LTV) of your customers to establish a target Customer Acquisition Cost (CAC).

Establishing your target CAC:

A healthy B2B business model aims for an LTV to CAC ratio of at least 3:1. This means the value a customer brings over their lifetime should be at least three times the cost to acquire them.

1. 1. Calculate LTV: Estimate the total revenue you expect from an average customer over their entire relationship with your company.
   2. Set target CAC: Divide your LTV by 3. This is the maximum you should aim to spend to acquire a customer.
      • Example: $50,000 LTV / 3 = $16,667 Target CAC.
   3. Define customer target: How many new customers do you need to acquire this year?
   4. Calculate budget: Multiply your customer target by your target CAC.
      • Example: 20 New Customers * $16,667 Target CAC = $333,340 S&M Budget.

Method 4: The hybrid approach

The most effective budget is created by using multiple models to validate your numbers.

• 1. Set the ceiling: Use the percentage of operating budget method to establish a realistic budget range based on your company's overall financials.
  2. Build the foundation: Use the ROMI-based or LTV-based model to calculate what it will actually cost to hit your specific revenue goals.
  3. Analyze and finalize: Compare the figures. If your bottom-up number (around $333,000 in our examples) aligns with your top-down range, you have a solid, data-supported budget.

NOTE: It’s important to note that for a venture-backed, early-stage company, it is standard for the total operating budget to be higher than the revenue target. Your operating budget is funded by the capital you’ve raised, not by your current revenue. Investors expect you to run at a loss to invest in the R&D and go-to-market activities required to achieve rapid growth. The key is that your models align and tell a consistent story about how you're investing that capital to generate a return.

How to allocate your budget

Your marketing budget isn't just for ads. A successful, scalable marketing engine requires deliberate investment across three core areas: Talent, Tactics, and Tools.

As a general guideline, many growth-stage companies find success with an allocation that looks something like this:

Talent (the strategists & doers) - 40-50% of your budget

This is the most important investment you will make. Without the right expertise to build the strategy and execute the plan, your investment in tactics and tools will be wasted. This budget needs to account for the human element, whether that’s the salary for your first full-time marketing hire, the fees for an agency or specialized freelancers, or the cost of a fractional CMO.

Tactics (the programs & activities) - 30-40% of your budget

This portion of the budget covers the hard costs of your marketing activities. This is the money you will spend on programs to reach your audience, which could include paid digital advertising, content creation services, sponsorships for industry events, or public relations fees.

Tools (the tech stack) - 10-20% of your budget

Modern marketing runs on technology. To operate efficiently and measure your results, you need the right tools. This budget must include funds for foundational platforms like a Customer Relationship Management (CRM) system, email marketing or marketing automation software, social media management tools, and analytics platforms.

Best practices and common mistakes

Once you have your budget, managing it effectively is just as important as building it. Here are some best practices for getting the most out of your marketing budget, along with some common pitfalls to avoid.

• Best practice: Test & iterate. Don't commit your entire budget to a single, unproven channel. Allocate a portion of your funds to run small, measurable experiments. Double down on what works and cut what doesn't.
• Best practice: Measure what matters. Don't get lost in vanity metrics like likes or impressions. Focus on metrics that connect directly to pipeline and revenue: Marketing Qualified Leads (MQLs), Sales Qualified Leads (SQLs), CAC, and marketing-influenced pipeline.
• Mistake to avoid: Hiring specialists too soon. You don't need a "VP of SEO" before you have a foundational marketing strategy. Your first hire or partner should be a generalist who can build the core engine.
• Mistake to avoid: Spreading yourself too thin. Trying to be on every channel at once dilutes your budget and prevents you from making a real impact anywhere. It's more effective to identify the 2-3 most promising channels for your audience and invest enough to succeed in them before expanding.
• Mistake to avoid: Setting and forgetting. Your budget is not a static document. It should be reviewed regularly against your results. Be prepared to be agile and reallocate funds to the highest-performing initiatives.
  
  
  

How a fractional CMO can help

Still worried about allocating the right marketing budget, or not sure what numbers or info to include? A fractional chief marketing officer like me can help. 

I've spent 20 years developing marketing plans and running marketing projects, including creating and managing the marketing budgets to fund them. I can help you plan your marketing budget, create your marketing plan, and manage and optimize your marketing projects to get the most out of every dollar.

Depending on your needs, I can help you manage your marketing on a part-time or project basis so you can manage your workload and budget effectively. Get in touch if you’d like to learn more!

Your budget is your growth blueprint

Moving beyond founder-led sales is a sign of success. Building your first formal marketing budget is the next logical step on that journey. By using a structured approach, focusing on your specific goals, and allocating resources wisely, you can transform marketing from a source of uncertainty into your company's most predictable and powerful driver of growth.