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Demand Generation Budget Allocation | Creation vs Capture

Episode 137

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How much budget should you allocate to Creating Demand versus Capturing Demand? In other words, should you be spending more getting in front and building trust with future buyers, versus going after those ‘in-market’ now.

Look, it’s a tricky balance to strike, and Kevin and I have been there before. We say that the best time to invest in demand creation is 6 months ago, and the second best is today. We’ve felt the stress and anxiety that comes with focusing too heavily on just capturing demand in the short-term, only to run out of steam further down the track.

But every business has limited time and resources to meet the current demands of today, and the future demands of tomorrow. So as a marketer, you need to strike the right balance between creating that future demand, and capturing that existing demand.

But here’s the good news – we’ve got (yet another) framework for you to follow. In this guide, I’m going to share the ultimate framework for balancing demand creation and capture activities. It’s a simple approach that accounts for your (a) company’s maturity and (b) your positioning in the market.

This is part of our Demand Gen mini-series. You can access previous whiteboarding sessions here:

Follow this, and you’ll be equipped to unlock sustainable, profitable growth quarter after quarter, year over year.

As per usual, you can read, watch or listen below to work through our guide to demand gen budget allocation.

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Mastering the Demand Generation Budgeting Equation: Creation vs. Capture

Let’s start with the basics here. Demand generation is the whole game when it comes to driving revenue for your B2B business. It’s a go-to-market strategy that builds an intense desire in your dream customers to purchase from you (see here for our extended definition of Demand Generation).

But here’s the key – it’s not just about capturing the 5% of buyers who are in-market and ready to purchase right now. If you only focus on that low-hanging fruit, you’ll eventually run out of customers to sell to. The real magic happens when you create demand with the other 95% who are currently unaware or just problem-aware.

You need to build relationships and trust with these future buyers, so that when they are ready, the logical conclusion they come to is that you’re the perfect solution for them. It’s about nurturing them through that whole journey, from problem-unaware all the way through to most-aware and ready to buy.

Now Kevin will tell you the stat – a crazy 80% of buyers won’t purchase from you if they weren’t already aware of your brand during the research phase. They’ll go with a competitor they know and trust instead. That’s the power of consistently executing demand creation activities over time. You get in their consideration set from the very beginning.

Allocate Demand Gen Budget Based on Your Company’s Maturity

Alright, now that we’re all on the same page about what demand generation actually is, let’s get into tailoring your demand creation vs. capture efforts based on where your company is at.

The simple fact is, your budget allocation should look very different if you’re a fresh-faced startup compared to a business with 20+ employees and an established product-market fit.

For those of you just starting out, I get it – you need revenue coming in the door today to survive. You can’t just spend all your time and money on creating demand that may not pay off for 6-12 months. So what we recommend is dedicating around 80% of your budget to demand capture activities.

Go hard on those Google Ads, pound those review sites like G2, and target all the high-intent, solution-aware searches you can. Just be prepared to hustle, because capturing demand is extremely competitive.

Let’s look at an example to illustrate the point further.

Example of Budget Allocation: New Niche CRM Product

Let’s say If you’re a new CRM specifically built for real estate agents selling luxury homes, you’ll want to go hard after anyone searching for terms like “best CRM for luxury real estate.” That’s the existing demand ready to capture right now.

But here’s the catch – you can’t completely neglect demand creation. Even at this early stage, you need to carve out about 10-20% of your resources to start creating future demand. Why? Because if you go too long without executing any demand creation, those demand capture costs are going to spiral out of control. Your CPLs and CPAs will skyrocket as you max out the small segment of luxury agents you can affordably target.

So use that 20% to start building brand awareness and trust with the broader real estate agent market who may not even realize yet that a CRM built specifically for their workflow exists. Create content that twists the knife and shows them what they’re missing out on by using a clunky, generalist CRM. That’s how you set yourself up to scale into that wider market in a sustainable, profitable way down the track.

For More Mature Companies (20+ Employees)

For more mature companies with product market fit (20+ employees is where we tend to see this), they should invest more into creating demand. Presumably by this stage, they’ve grown to a certain size because they’re able to capture a lot of the demand out there.

Now as they’re tapping out of that 5% who are ready to buy right now, they need to build trust with future buyers – so they come to them when they’re in-market

It takes time for the future market to trust you, so don’t start this too late or you will find it very difficult to expand into that market. This starts to manifest in higher CPLs and CPAs for the marketer – and is often a very stressful situation.

Capture demand as much as you can, and expand into demand creation before you hit the point of diminishing returns.

(P.S. we have a Demand Forecast template here to see when you’re likely to hit diminishing returns).

Eventually as your company matures, you should be spending 80% of your budget on Demand Creation (future demand), and 20% of your budget on Demand Capture.

Allocate Demand Gen Budget Based on Your Company’s Category Positioning

Awesome, so we’ve covered how to balance demand creation and capture based on your company’s maturity and stage of growth. But there’s another crucial factor that’ll determine the right strategy – your category positioning.

How you choose to position your brand and compete in the market is going to massively impact where you allocate your resources. There’s basically three main ways you can go about this.

Category Positioning 1: Big Fish, Small Pond

The first is what we call the “big fish, small pond” approach. Here, you’re aiming to absolutely dominate a well-defined niche or segment within an existing wider market. You don’t want to take on the Goliaths directly, but you want to bully all the other minnows and own your little slice of the pie.

Using our CRM example again, this could be like Pipedrive deciding to laser-focus solely on being the best CRM for salespeople, rather than going after the whole generalist CRM market.

With this positioning, there’s likely a decent amount of existing demand you can capture through paid channels, review sites, all that good stuff. You can do your research to see how much search volume is there for your niche?

For example, if you were Pipedrive, you can look at keyword search volume for ‘CRMs built for sales people’. It’s quite likely you’ll spend 70-80% of y our budget trying to capture this existing demand.

But you’ll eventually need to start creating demand too if you want to scale beyond that niche, by getting on the radar of people who aren’t actively searching for your specific solution yet. For example, maybe you need to get in front of sales-led teams who are using HubSpot, to show them why Pipedrive is a much better alternative.

Category Positioning 2: Head-To-Head

The second approach is the classic “head-to-head” strategy. This is where you’re coming right out and saying “We’re going to take down the leader in this market category.” You’re convincing customers that you can deliver the core solution better than the incumbent player.

I’ll be honest, this is an incredibly tough strategy, especially for smaller businesses. Going head-to-head against someone like Salesforce when they have endless marketing dollars and decades of brand equity? That’s a fight 99% of startups aren’t equipped to win through demand capture alone.

For a head-to-head play, you’ll need to go extremely heavy on demand creation from the outset. I’m talking brand-building, performance marketing, case studies showing superior outcomes – everything you can to start chipping away at that mountain of existing demand locked up by the market leader. You’ll need to show how great you are, and that customers have achieved better outcomes with you.

Category Positioning 3: New Category

The third category positioning is by far the most difficult – creating an entirely new market category from scratch. This is where you have to convince customers that there’s a new way of doing things that deserves its own space in their mind.

You’re effectively saying “We’re not better than the existing solutions, we’re just different. Our thing is so revolutionary that it can’t be compared to what’s out there.” This is what Uber had to do when they disrupted the taxi/transport industry with ride-sharing.

For a new category creator, you’re truly starting from zero. There’s no existing demand to capture, because buyers don’t even realize yet that your solution could address their problems in a new way. It’s a total greenfield.

So in this scenario, the vast majority of your resources – we’re talking 80% or more – needs to go towards intense demand creation from day one. You have to define the parameters of this new market, educate buyers on why the status quo sucks, and lead them to the logical conclusion that your solution is the pioneer.

It requires a monumental amount of content, advertising, PR – basically just shouting from the rooftops to make people aware this thing exists. And it’s massively costly and high-risk, because you’re making a billion-dollar bet that you can actually shift an entire market’s mindset around how they think about a problem.

Not many businesses have the resources to pull off a new category creation play successfully. Most will be better served choosing one of the other two paths – either niching down to a specific segment, or taking the fight directly to an incumbent leader. Both of those routes at least start with some existing demand out there to capture.

Some More Thoughts On Category Positioning

No matter which positioning you choose, the common thread is that demand creation has to be part of the equation, especially if you want to keep growing sustainably. You can’t just rely forever on capturing the crumbs – you need to bake a bigger pie over time.

So there you have it. Whether it’s your maturity stage or your category strategy, there’s a balancing act to strike. But don’t stress. If you’re clear on which scenario you fall into, you can develop a simple, scalable game plan for executing both demand creation and capture.

A Final Word and Action Steps

Okay, if you’re still with me – I just want to nail something home. There needs to be a balance of budget between demand creation and capture. Do not start demand creation and reaching future buyers too late.

You will experience serious growth pains and your life will be made way harder as a marketer if you leave it too late.

So let’s define those all-important next steps:

  1. First up, you need to get crystal clear on your company’s current maturity stage and category positioning. That’s going to determine how much you should weight towards demand creation vs capture right now.
  2. Next, you can’t just wing it. Document out a comprehensive demand generation strategy that accounts for both components. Having that full gameplan prevents you from losing focus or letting things slip through the cracks.
  3. From there, it’s all about execution, execution, execution. Consistently pump out that good stuff – top-notch creative content, targeted ads, you name it. Don’t set it and forget it.
  4. Finally, this is crucial – keep measuring and optimizing as you go. As your business evolves, so will the perfect creation/capture balance. Stay nimble and adjust your allocation as needed to keep that growth engine humming.

We give you the strategy, templates and tools to put all of this together in our 12 Week Demand Generation Training program – The B2B Incubator.

Check out here why B2B marketers like you love it.

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