How to identify your marketing spend.
Seems like a straight forward question?
But the answer can be far from straight forward .
Let’s divide the issue into three parts.
Firstly, let’s look at the ‘philosophy’ of allocating a marketing spend
Marketing is not optional – and it is also not free.
You need to consider your marketing budget as an investment in your business.
And there are few businesses (I can’t think of one...) who can build a sustainable business just using free social media.
Marketing is every touch point with your customers and even if you are doing it yourself you need to invest in design, software, online tools.
Equally, that investment should bring you a return. If you are just ‘spending’ on marketing without evaluating the results so that you know the return you are generating, you need to stop what you are doing and work out those numbers.
And talking numbers – that brings us to the second point: How to crunch the numbers so that you can allocate the right spend.
Grab your Profit & Loss Statements
Grab your Sales Objectives
You should know the cost of running your business and have sales objectives to bring you around a 30% margin (30% profit) over and above the business costs.
The cost of running your business divided by the number of clients you need to cover that cost is your Cost of Acquistion.
So, for example, let’s say you need $70K per year to run your business and achieve 10 customers at $10K revenue each.
That means that each customer has cost you $7K and given you a profit of 30%
Now, let’s address your sales funnel.
To get those 10 customers at say a 1% conversion from initial enquiry to closed deal....you need to get 1000 enquiries (targeted, quality, enquiries).
To get 1000 enquiries at – let’s say a likely 2% conversion rate – you will need to get 50,000 potential customers to be aware of your business.
Can you see now how just doing free facebook posts are not likely to get you that 50,000 strong audience?
So, how much should you invest in marketing?
That is where a combination of what you can afford and what you have to spend comes into play.
The % of turnover that is allocated to marketing will vary depending on the stage of your business and competitors in the market place. A start up will need to spend a far greater amount on building awareness and establishing the business than a mature business.
On average a mature business that has been sustained for some time with no new product launches – steady as she goes kind of market place – will spend around 5% to 10% of revenue on marketing.
A start-up, or a business in a field where new technologies are seriously shaking up the playing field, can spend as much as 20% of revenue.
But you also have to look at whether that 5%, 10% or 20% is going to get you in front of those 50,000 people.
For our above example, let’s be really ballsy and allocate 20% of our $70K running cost to marketing. That’s $14,000. And in this day and age – how far is $14,000 going to go? Not very far.
Which means – back to the beginning.
Can you increase the income per customer? Decrease the profit margin (maybe for the first year or two), so that you end up with a reasonable and workable budget that in turn will secure your sales? Reduce the other running costs?
The third area to look at is how you spend the allocated budget.
Some marketing tactics are mandatory. They may add to marketing responses but very indirectly. They are just a cost of doing business. Brochures and cards, for example.
Some tactics are integral and intimate parts of the “Marketing Sales Funnel” and as such they should be connected to a response – over a period of time.
So, your marketing budget needs to be allocated to two clear areas – the mandatory, the foundation (logo, cards, website), and the tactical – campaigns, promotions, flights of advertising.
Once you have worked out an annual estimated amount, allocate % of the total to the activities that you have identified in your marketing plan will achieve your objectives.
Be realistic about the activity that is mandatory – but will not in itself generate revenue. And the activity that will generate revenue over a realistic timeframe.
Remember to track all numbers so that you can review and ensure you have a positive return on investment.
And be clever about your spend.
Put dollars into professionals who can give you quality outcomes – rather than trying to ‘save’ money in the short term by doing it all yourself.
If you would like a list of the possible marketing expenses in your business....Logo design, surveys, online ads, software, etc....just email me