One of the biggest questions I hear people debate is how much they want to spend on marketing their business. Different industries have different ideas on this – in the marine industry, for example, there’s not a lot of consensus and budgets are relatively small, except for the multinational companies.
Here’s a starting tip: the Small Business Administration recommends that small businesses (under $5 million in sales revenues) spend 7- 8% of their budgets on marketing (based on gross sales revenues). For a $4 million company, that’s approximately $300,000. Please note that this assumes you have profit margins of 10 – 12% (after all expenses are covered, including marketing).
There are many low margin businesses that don’t have anywhere near these profit margins (grocery stores and supermarkets, for instance). However, if you do enjoy 10% profit from your sales, it’s important to consider your marketing as an investment in your business, not a “nice to have” option in your budget.
Here are my five (5) tips on creating your marketing budget.
Tip #1 – Figure out what your marketing budget is for the year – and allocate it early
Once you’ve come up with your number, set it aside. It’s an investment in your future so it should be allocated at the beginning of your fiscal year. If you don’t have the money at the beginning of the year, calculate what percentage of your monthly sales you’ll set aside each month to pay.
In my example above, a $4 million company will set aside $25,000/month for marketing. One trick is to put it in another bank account – this will be your “marketing account” – so you won’t spend it on anything else.
Tip #2 – Look at what’s working for you – and what isn’t
Before you spend a dime, you should do some analysis on your sales from the past year. Where did they come from? If you set up a booth at a conference or show, did you close any sales from that show? If you didn’t, then perhaps other marketing activities should come before your conference expense next year.
If you’re a member of an association, and you got business from that group, be sure to put those meetings on your calendar early and attend. If you got leads online that closed, be sure to allocate marketing budget to your online efforts. If you haven’t tried a particular type of marketing, set aside budget to try it. Who knows? It might lead to your next big sale!
Tip #3 – Allocate and prioritize by what you KNOW works best
While this makes sense logically, I see this as a difficult task for many to do. Those who’ve been running their businesses for a while often think, “I’ve always done this, so I need to keep doing it,” or “I’m afraid I’ll lose business if I don’t advertise there.” This is about fear of the unknown: what will happen if I stop doing what I’ve been doing?
Fear is not a marketing strategy. Going where you make money is a marketing strategy! So if you know that a certain place works – keep going there! Prioritize that spend! List these out with the biggest ticket items first – so you’re sure you have budget for them.
If there are some places where you’re not sure – do a test.
- Try not being there for once and see what happens, or
- Create an outrageously fabulous offer that people can’t resist and see if they take you up on it (you have to be sure it’s an offer you can fulfill – and it’s best to figure out, in advance, how to get more sales once you’ve found this buyer!).
If you go with (B) and give the perfect offer and no one responds? Then it appears that this marketing space isn’t your best place to be.
Tip #4 – Not sure what marketing is working best? Find out!
One of the biggest struggles I see with businesses is measuring what marketing is working and what isn’t. If you can’t measure what marketing is working for you, it’s time to “close the loop” and set in place ways to measure sales sources.
Having said this, there are certainly times when it is appropriate to spend money on marketing that may not lead to sales. One good example is to get out your “brand” – which may include sponsoring an event or a nonprofit that aligns with your core values. These are great places to be – and be sure that you have enough marketing dollars to afford them.
On the other hand, if you don’t have internal processes in place to measure which marketing is doing best for you, then you need to fix this first. This is what I call “closing the loop” on the marketing spend, so that you can know what sales are closed, based on your marketing efforts.
Closing this loop might include asking everyone who calls on the phone where they heard about you, for example. Or tracking people other ways, digitally, so you can see how they came to your website and know that those advertising dollars were well spent.
Tip #5 – Understand the particulars of timing: where/how you sell best
Many businesses are seasonal, or there are certain “buying times,” so it’s important to allocate your marketing dollars with that in mind. If, for example, you’re the $4 million business in the example I gave earlier, and you know that half of your sales come from the Fort Lauderdale International Boat Show, then at least half of your marketing should be allocated to the Boat Show next year. Or more, if you want to grow!
Once you know when and how your sales are coming in, allocating marketing budget isn’t that hard. But be sure that you spend more when you want to grow. And always test new ways to find prospective buyers. That next big sale might just come from an new marketing source you’ve never considered before.
Remember: marketing is an investment in your business. If you’d like some help with this, feel free to contact me.