Instead of using a rule of thumb percentage, we advocate using a “start with the objective” rule of them.  We used this practice effectively in the businesses we’ve managed, and also in helping clients to determine the answer to the aforementioned question.  The process goes like this…

• First, marketing needs to work with sales to determine annual revenue objectives and projections.  
• Next, marketing and sales should determine how much of that total is expected to come from new customers (as a result of marketing’s efforts), versus how much is expected to be generated from existing customers. The “new” sales number becomes marketing’s main objective.
• Next, use historical data to determine the revenue for the average sale, lead to close ratio, and cost per lead.  These three numbers will allow you to determine how many leads are needed to arrive at the sales goals, and what it will cost to generate them. 
• Finally, using those costs, marketing and sales together should determine (using historical data) which marketing communications methodologies will generate the number of leads needed to arrive at the agreed to sales objective. Then, allocate spending to each of those methodologies proportionately.
   
  Here’s an example of what we’re talking about…
  
  
  
• Total Sales Objective                                  $25,000,000
• Objective for “New” Sales (20% of Total)       $  5,000,000  
• Average sale                                           $         5,000
• Total sales needed from new customers                  1,000
• Lead to close ratio                                                20%
• Total leads needed                                              5,000
• Historical cost per lead                          $             50.00
• Total Marketing Budget for new business $      250,000

You can use a similar process to determine the budget needed for growing existing customers to arrive at the total sales objective.

By using this budget process and making sure sales is involved, you’ll be able to avoid an arbitrary percentage budget trap.  Instead, you’ll have a unified marketing and sales team, each knowing that the right money is being spent on the right activity.