Why It's Crucial To Choose The Right Marketing Budget To Grow Your Business
Why It's Crucial To Choose The Right Marketing Budget To Grow Your Business
Often, the question that doesn’t enter the minds of most small businesses owners is “how much should I spend on marketing?”
Businesses start small on a shoestring budget without a solidified plan or strategy guiding the business. Anything deemed “not essential” to the business is overlooked and new business is solely gained through referral and word of mouth.
They don’t ask “how much should I spend?” because in their mind, they don’t have the disposable revenue to consider marketing at all.
Because of this, these businesses struggle along on this path of having just enough work to make ends meet but not enough to invest in growth. Sadly, this means that 60% of these businesses fail within 3 years, something that they could have avoided.
Who can blame them though as even toughened veterans in the business world, who are looking to grow their business, are resistant to ask “how much should I spend on marketing?” They are accustomed to their processes and believe that whomever they ask will have a reason to say it will cost more than they want to hear.
The result is looking for the cheapest cost to secure leads. They’ve perhaps tried paper advertising or local magazines without too much success. They’ve been told they need a website so have had one built as cheaply as they can. However, despite these “efforts”, the leads haven’t rolled in as expected and their website can barely be found in Google without a very thorough search. Some may have even had a go at PPC or dipped their toe into SEO but the returns have never really justified the cost or the time.
Unsurprisingly, the business concludes that marketing is “a load of smoke and mirrors” and doesn’t work for them. They revert to type and take the proven business generation model they have always used. “People buy people” and “business networking is best” are the driving force and growth is chased by securing more talented sales people.
Is this your business?
Sound familiar? It should, an overwhelming majority of businesses run with very little marketing at all. They believe that with a simple website and a small budget, they have enough to cover marketing as a whole.
That’s not to say that this approach is wrong, in fact most businesses who have made it past the 3 year mark are making a profit and are a success. However, the problem lies in the inability of the business to scale up. The growth is stunted for two main reasons:
Good sales people are very hard to find and even harder to keep. Months could be spent shaping and training a new sales person only to have them lured away by promises of big commissions elsewhere.
These people may also want a role where they are given leads to chase rather than hunting in the cold area of business networking and LinkedIn stalking. “I can close a deal if only I can get in front of them” is said and proven a lot. The reason is that a lead is so hard to come by that the business owner cuts his margins to the bone to ensure no leads are squandered.
The second reason is that a good entrepreneur doesn’t invest in growing a business if they don’t have any confidence in where the work will come from to support it. They may have seen many feasts and famines over the years and know that any short term glut of work may be followed by a dry spell that leads to equally as many problems.
What's the solution?
The solution starts with the acceptance that “marketing does work and can work for any business”.
If you think your business is ready to make this acceptance, you may now be tentatively asking the question:
“How much should I spend on marketing?”
And we’ll be honest, the answer is “more than you want” in both money and determination.
This also doesn’t guarantee instantaneous or consistent results straight away.
Whilst this isn’t what people want to hear, the optimistic business owner sees the glimmer of hope in the statement suggesting that whilst it may take time and money, the results are always achievable.
The first hurdle to overcome is on how the business owner sees the cost. Most will look to the profit in a single sale and want to spend a small percentage of that to secure a lead.
They need to consider that they won’t convert all of the leads they secure, so, they slash the available marketing spend per lead again to a point where it’s unachievable. The business MUST see the marketing spend in terms of the business as a whole. The success or failure of the business is judged at a top level so marketing needs to be considered at the top level as well.
You wouldn’t celebrate the profit margin on a single deal if at the end of the year the business had made a loss so why consider marketing against an individual transaction?
A business needs a certain level of leads to keep it ticking over and more if it wants to grow. Marketing needs to provide the lifeblood to the business to “feed the machine”. If the business wants to grow the flow needs to be greater.
So, "how much should I be spending on marketing?
The answer is not exact but as businesses don’t operate in a vacuum, competition determines the level of spend to a simple calculation and depends a lot on the sector your business is in.
Scour the internet and you will find many references to a percentage of turnover ranging from 5% to 30% of turnover. Yikes!
Someone new to the concept of marketing who is full of doubts and misgivings should perhaps start low but understand that it’s never going to be as low as you’d like. That being said, the real beauty in marketing is the array of options available, with variant prices and tools that your business can utilise.
Many years ago an American retailer is attributed with saying “Half the money I spend on advertising is wasted; the trouble is I don't know which half.” And this was probably a very true statement before the advent of digital marketing.
Digital marketing is much more accountable so spends can be less to reflect the efficiencies. It has grown significantly as a tool over the last 10 years and is only going to get bigger. Everyone is online these days, including your key customers. Without a digital marketing strategy, think of the leads you could be missing.
We appreciate that adopting an approach that includes digital activity can often be overwhelming and confusing so if you are new to it, an annual marketing budget of 3 to 5% of turnover would be a good place to start.
"Why will the results take some time to be consistent?"
Put simply, marketing isn’t an exact science and brand momentum isn’t achieved overnight.
A business should aim to have a Marketing mix that spans many avenues to secure leads.
You may be thinking, why? Surely one channel will prove to be better than another?
Whilst this is true, you are looking for consistency. All channels naturally have peaks and troughs on the number of leads they deliver so in having multiple channels, you insulate the business from these peaks and troughs. Recruiting a Digital Marketing partner means your business benefits from expert advice on the direction in which to take your marketing strategy.
The Netmatters approach is to develop a plan for your marketing based on the objectives you are trying to achieve.
How we work:
Firstly we would look to determine the target audience. This would be determined by working out who your “ideal customer” is and who the “decision maker” is.
A quick way of doing this is to determine your top 50 customers by spend and then at other commonalities in terms of turnover, head count, sector, first service bought and specific need.
Once we have the emerging blue print for the ideal customer, we then determine the decision maker through identifying the roles of the people you deal within your top 50 customers.
Armed with this data, we would define a range of channels to include in your mix to determine how we get your products or service in front of these people; repeatedly and at the right time. This may, for instance, include a mix of the following:
- Content Generation
- Social Media Marketing
- Live Chat
- Pay Per Click Advertising
- Email Marketing
- Affiliate Marketing
The plan would then be developed by allocating spends and defining when things are going to be done.
This part is imperative to a successful marketing mix. If the marketing isn’t consistent you can’t then make any decisions around the effectiveness of anything.
"How long will it take to be effective and consistent?"
The answer is probably 6 to 12 months at the minimum.
This is not to say that you won’t have any success early on because you will. Many times when a marketing program is started there will be some immediate results in the first few months but the results will be sporadic before the level of leads becomes consistent.
Over the months the marketing will become more effective for two main reasons.
- Momentum - people will likely start to recognise the owner’s name after seeing posts on socials or an article they read. The business name will spring into their heads or they will recognise it when doing a cursory search on Google and make an enquiry. Coca Cola still advertises its brand despite being globally recognised to ensure it maintains momentum.
- The second reason is that as we work on your marketing and report back monthly, we can quickly develop your mix to be as effective and resilient as possible. Different approaches are taken and the methods that work are given more budget so the consistency starts to build. This means a consistent number of leads can be delivered to your business.
"So... how much should I spend on marketing?"
To summarise, the truthful answer is “No less than 3 to 5% of turnover…. and a lot of nerve to hold the course long enough for it to become effective.”
“As a small business owner myself, I have taken this exact journey and was equally reticent to take the plunge and invest in our own marketing. We have now been on the track for several years and I can confirm that this is the one thing we have done that has revolutionised our business and given us the opportunity to be truly scalable.” – James Gulliver MD Netmatters
If you would like to discuss how we can help with you reach your marketing goals. Please get in touch.