As a small to mid-sized business owner, your marketing budget can be one of the most difficult expense items to tackle.
Most of us want to just focus on basics like rent, utilities and payroll – I get it, there is usually less guesswork involved and these are necessary line items. But how do you pay for the basics if you aren’t selling? And how do you sell if you don’t market? I tell you one thing for certain, your marketing budget strategy shouldn’t consist of spending what’s left after all your other expenses paid.
Now that we’ve established there’s simply no way of getting around it, let’s weed through all the mumbo-jumbo and see if we can help you determine how to budget and delegate those marketing dollars so they work for you.
Where to start when budgeting for marketing
There is a lot of information and opinions floating out there and not everyone is in agreement on this subject, but quite frankly that’s because it truly depends on your business. We decided to start with a knowledgeable source – The U.S. Small Business Administration recommends that, as a general rule, small businesses with revenues less than $5 million should allocate 7-8 percent of their revenues to marketing, assuming your margins are in the range of 10-12 percent (after expenses).
Factors to consider are the industry you’re in, the size of your business and its growth state. Many startups, for example, allocate funds based on projected gross revenues. In addition, the U.S. SBA recommends you split this budget between brand development and promotion. So factor in foundational expenses like creating a logo, developing your website and getting those much needed business cards in addition to ongoing costs for ad placement and such. Startups in highly competitive industries could spend up to 20% of sales in their early years just to get a foot in the door.
So, now you have a solid starting point, but just knowing how much you have to spend isn’t enough – you also need to determine how to spend it. This means you need a plan, you need to revisit your plan often, and you need to track results so you can adjust as needed.
Let’s see if we can point you in the right direction with the questions and basic measurement formulas below.
Figure out where to spend your marketing dollars wisely
Remember earlier when I said how much you spend really depends on your business? The best way to avoid over or under spending is to know what works best for you.
If you’re just getting started, you may not have all the answers now, but you’ll know what to track moving forward.
If you have been in business for a while but you haven’t been measuring your tactics or documenting your process, these questions will take some work on your part. Trust me, if you take the time now, your efforts will result in your ability to set some standard benchmarks and be sure you’re spending your money where it counts most.
Here’s a short list of questions to get you started:
1. What are your most important lead-generation tactics? To answer this question you’ll need to look at historical results to see which tactics performed best. Was it your email marketing campaign, in-person networking or a particular landing page that drew the most leads?
2. Where do you get the most bang for your buck? Look at your high performing lead generators and determine the cost for each, including time spent by you and your staff. You’ll use this calculation later to determine the return on your investment (ROI).
3. What’s your process for implementing that tactic? Here’s where you document the process you used. Once you take a look at steps it takes, you can eliminate the unnecessary ones and streamline for the best results.
4. How do you measure the results? This is the question of the day! Measuring results will allow you to know what’s working and what isn’t. Zero in on your most effective lead- and sales-generating tactics, so you can more accurately calculate that dreaded marketing budget.
Calculate and measure the results of your marketing efforts
Now that you have a list of your highest performing marketing tactics and the cost to make them happen, you can start calculating results and make informed adjustments to your budget.
How to Calculate Cost per Lead:
Cost per lead measures the total spend versus the amount of leads generated. Once you know this, you can compare which lead generating tactics are most cost efficient. Keep in mind, a short list of qualified leads is more valuable than a long list with low conversion results.
Lead Cost ÷ # of Leads = Cost per Lead
How to Calculate Cost per Sale (CPS):
CPS measures the total spend versus the amount of actual sales generated. When you know which marketing tactics attract actual buyers, you can focus your time and money on those tactics.
Cost ÷ Sales = Cost per Sale
How to Calculate Return on Investment (ROI):
To calculate the return on your investment you need to divide your profits by the investment cost. Also consider the amount of time (rate of return) it takes to make that sale when comparing tactics.
Gains from Investment - Cost of Investment = Profit
Profit ÷ Cost = ROI (% or Ratio)
While we started down this path trying to figure out how much to budget, hopefully you have also learned there is more to know than just the numbers. Determining your budget is your goal, how you get there will largely depend on your marketing goals and how they align with your overall business goals. Create reasonable goals based on experience, industry and the marketing tactic (tool) you’re using.
You can’t truly measure results until you know what results you want. For example, if your displaying an ad in your email newsletter, your goal may be to get 5 percent of readers to click through and 2 percent of those to actually purchase.
Some tactics are easier to measure than others. Online activity is easily tracked and measured, but how do you measure the efficacy of print materials? Often a savvy marketing team can find correlations between print and online marketing efforts. So before you reign in your print funds, consider the impact on not having those staples in your tool kit.
Remember, have a plan, revisit your plan often, and track results so you can adjust as needed.
Have a Pawsitively Tail Waggin’ Good Day!
P.S. Ruff Haus Design is a results focused brand consulting company located in San Diego, CA. Let us help unleash your brand image, connect with your customers and gain their loyalty.