How much should I spend on marketing? It’s the question I get asked most often when speaking with both small business owners and leaders of medium enterprise businesses. And I hate it, because there is no right answer.
Your Guess is (Almost) as Good as Mine
When you start with the dollars, you’ll probably end up focused on the wrong end of the problem. I encourage my clients to ask better questions. The process of working through the answers to “What do I want to achieve?” and “What do I need to do to make that happen?” will get you quickly to a marketing budget that works for your business.
Unless your marketing budget is tied directly to a goal, it doesn’t matter what number you come up with, it’s still just a guess. You could easily spend way too much and get nothing back in return. Or worse, spend way too little, then wonder why your business is failing.
Start With What Do I Want to Achieve?
If your business is humming along at a comfortable profit, you’re working just as hard as you want to and life is just tickety-boo, you may not need to do much at all. This happens a lot more often than you might think. I meet many entrepreneurs who started their businesses to support a lifestyle goal and, once that lifestyle has been achieved, doing the extra work required to grow the business would actually decrease their satisfaction levels. These entrepreneurs are quite comfortable where they are and the goal of marketing is to maintain their income level over time.
On the other hand, if you are looking to triple your gross revenues over a three year period, you’re not going to make that happen on a shoestring. Your marketing goals and marketing investment level will be much different; you may be looking to enter a new market, launch a new product or generate repeat sales from an existing client base.
Figure out your business goals. Get specific – know exactly what that increase will mean for you in terms of incremental profit. Know what you’re spending now; and what you’re getting in return. The gap between where you are and where you want to be is your marketing shortfall and it will determine how much your marketing spend needs to increase.
What Do I Need to Do?
Now it’s time to get tactical. Specifically, what are the things you need to do if you are going to meet your goals. Let’s look at two start-up plumbing companies that opened their doors on the same day.
The first company is operated by an independent tradeswoman whose goal is to serve the needs of homeowners and build a stable, predictable income from her business which is based out of her home. Her marketing program was all about getting the first few clients, then encouraging those clients to refer their friends. That meant a yellow pages listing, a website and going door to door handing out flyers. She built her website using a free/low cost online service and developed flyers using a template offered by her discount printer.
The second company is a partnership designed to serve the needs of strata councils and property management firms. The marketing goal was to develop a core client base among multi-unit residential properties within a specific geographical radius with enough business to employ a staff of five. Their launch required a much more sophisticated and coordinated marketing approach. Or, in other words, a healthier startup marketing budget.
If you’re working with a marketing coach or a marketing consultant, these first two questions should be the focus of your early work with them. Be wary of any consultant who tries to sell you solutions without first answering these very important questions.
How Much Will That Cost?
You’ve got a plan! Isn’t that a relief? Pour yourself a glass of wine and enjoy a moment of celebration. Then get out your calculator. It’s time to figure out what your marketing plan is going to cost.
- What people/skills do you need to implement everything in your plan? Can you do this work in-house? Do you need to get help?
- What will the cost be to hire an employee? A freelancer? An agency?
- Do you have enough work to keep an employee busy?
- Will a freelancer have all of the expertise you need?
- What tools do you need to put in place? Can a supplier provide those for you?
If you are working with a coach or consultant, they can offer some insight, but eventually you’ll need to go out and get estimates for each project or campaign in your plan. Then, add them all up to get your annual budget.
How Much Marketing Budget Can I Afford?
If you looked at the number you came up with in step three and thought “I can do that”, congratulations. You’ve just set your marketing budget.
On the other hand, if you had to swallow (twice), it’s time to get tough with yourself.
- If your marketing budget is way out of reach financially, your goals are probably too lofty and a more realistic growth plan might be worth considering. You can always revisit your investment in 6 months if cash flow allows.
- If the roadblocks aren’t financial, ask yourself what’s holding you back from making the investment. Are you really committed to the goals you established in step one or did you set them in response to external pressure? Are you concerned that you won’t be able to meet the demands success will bring? Is the number outside your comfort zone?
Finally, put everything in context. What are the most important things to do first? Can you afford those budgets? What do you have to achieve (in increased sales) to fund the next set of campaigns? Can you deliver anything in your plan as effectively with a lower investment? What are you giving up by doing less? What if you give yourself more time to achieve those goals, how does that change what you have to make happen this year?
At the end of the day, the right amount of money to allocate to marketing is the dollar amount that gives you a reasonable chance of meeting your business goals without eating up all of your profits in the process. And if your business is operating with a profit margin so low that you can’t afford any marketing whatsoever, it’s time to take a hard look at your operating model. You may not be charging enough, be overstaffed for your business volume or be buried under a high overhead that your business can’t sustain.