The big question when it comes to marketing is always, “how much is this going to cost?” Generally speaking, marketing services are perceived as an expensive project and many business owners are hesitant to spend valuable dollars on something that may or may not have the return they hope for. At least, that’s one way to look at it.
The dollar amount you spend on a marketing project is only one small factor in that project’s performance. If you want to make your marketing budget work harder, it’s important to understand what the other factors are and how to make them work in your favor. It’s not just how much you spend, but how you spend it that makes the difference between just-okay and extraordinary results.
Unlike other business expenses, your marketing budget can have a direct and exponential effect on your bottom line if you manage it well. Finding the right marketing partner will also help you understand when and why to spend money on marketing. Use these tips to get to know your marketing budget a little better and uncover the best opportunities for your business:
#1 Separate Marketing and Advertising Line Items
Most business projections have a single category that accounts for both marketing and advertising. If you didn’t know this already, we have a secret for you: marketing and advertising are not the same things, and treating them the same way in your budget spells lower ROI for both. Simply put, advertising is the amount of money you need to pay to the media you place your campaign in while marketing is the planning, messaging, and design behind that campaign. You need both to make a splash, but they really should be viewed as two separate expenses.
#2 Compare Average Budgets
Taking a look at the benchmarks for similar-sized businesses is a good way to see if your marketing budget is on track to be competitive. For established businesses, The U.S. Small Business Administration recommends spending 7-8% of your gross revenue for businesses under $5 million, and closer to 10% for those over $5 million. New businesses should be spending somewhere between 12-20% of your revenue or expected revenue. This percentage of revenue should be split between marketing and advertising.
#3 Reserve a Marketing-Only Portion of Your Budget
The marketing-only piece of the budget should be around 5% of your expected gross revenue. This 5% should be allocated towards things such as the ongoing marketing implementation of a solid foundational strategy. These are the day-to-day tactics that engage your audience, the advertisements you place with specific media and tactics like email newsletters, video, content, and so forth. You should also expect to use more than 5% on big projects, such as website updates.
However, spending money on these day-to-day items will certainly be a waste of funds if you do not have a solid foundation.
#4 Build a Solid Foundation
To keep your sales pipeline moving and make the most of day-to-day activities with existing clients, you will need to invest in a solid marketing foundation. Since this generally includes the necessary larger projects, it will cost closer to 10% of your budget.
The foundation includes items like branding, strategy, website and social media. Working on these items to create a solid strategy that highlights your best target audience, the messaging and branding for those audiences and putting together a road map of strategy pieces paired with the big projects like a website will give you a healthy starting point. Once these things are completed, not only will your day-to-day activities will have a much higher conversion rate, but you will also have baseline KPIs to assess future campaigns.
#5 Consider the Cost of Client Acquisition
When making your marketing budget, the most important thing to remember is what your potential ROI will be. Consider what a single new client means to your bottom line. For example: imagine you have not built your foundation and you are relying on a salesperson to convert customers. You probably see the direct correlation between what you pay that salesperson
to what the conversion of each customer is. Letʼs say you currently spend $2,000 per new customer with your sales rep and he or she can convert 1 new customer per month. Provided that each new customer is worth more than the $2,000 you spent, you are happy.
But consider this: perhaps you built your foundation and were able to add a highly converting website and social media channels in addition to your sales rep. Using the 5% rule, letʼs say you spend $1,000 per month on digital media tactics and can convert 2 additional customers per month. You’ve increased your customers by three times while only spending a fraction of the cost and in a shorter time period.
Thatʼs where marketing becomes a saving vs. a spend. Looking at your current marketing budget is only the starting point for a strategy that should elevate your entire business. The key is finding a marketing partner who can work with you on the foundational items, but also on a long-term implementation and execution process. This is where you will save the most.
What are you looking for in a marketing partner? Let’s start a conversation and see if we’re a good fit.