I was thrown a curly one last week: How much should I spend on marketing and how much should I expect to get back in return? I’ve written the following blog to help set the record straight on small business marketing budgets. It’s a longer than usual one, but I hope you find it useful.
As small business owners – it’s a tough balancing act, you need to see results BUT as content marketing and social media take hold, it’s hard to measure and attribute one single activity like a blog post, for example, to one sale. Marketing is a machine that nurtures your buyers and when they’re ready to buy, they will come. Check out: setting the record straight on social media marketing for more on that.
Decisions… Decisions: how much is enough?
A very old rule of thumb is marketing budget = 10% of your total turnover. But nowadays with so many different profit margins and business structures that formula doesn’t always work. Every business is different so how much you spend on marketing depends on the type of business you have and the marketing tools you use.
Dollars are also no longer the only consideration that make or break marketing effectiveness. Small business owners need to budget both time and money to communicate and listen to customers — interacting, responding, and developing two-way relationships as a result. Which is where heavy content, social and email marketing come into play.
So how much?
To help determine how much to allocate for marketing, consider:
Business type: Online? Bricks and Mortar? Service?
If you’re an online store it’s much easier to attribute sales to digital marketing efforts than it is for serviced based businesses. Particularly businesses that need that phone to ring.
A general rule of budgeting is to work out how many products or services you need to sell that will not only cover the cost of your marketing efforts but make it profitable. Set those as loose targets to keep in mind when investing in your marketing.
Market size
Businesses that serve customers local to their location can target their marketing to a specific area. As a result, they can allocate a lower investment than businesses that have to build awareness and interest in state-wide, national, or even international markets.
Competition
At its core, competition often drives marketing decisions – it shouldn’t – but in small business it often does. Businesses that have the monopoly tend not to spend a great deal on marketing, but quickly need to invest if competition heats up. I always advise its better build a regular communication with your customers and invest in their loyalty, even if you have a nice monopoly, so if and when competition comes knocking your customers won’t budge.
Another way to look at competition (particularly on social channels) is if your competition is there and talking to your potential customers, can you afford to NOT be there?
Just make sure you aren’t reacting to everything your competitors are doing. It’s good to look over your shoulder to stay competitive, but copying everything they’re doing is not an effective strategy.
Business objectives
The most important consideration in setting the right budget is to understand your growth goals. The more aggressive they are, the more time and money you need to budget for marketing.
If you’re planning to launch a new product, service or open a new location, you need to increase your marketing efforts to gain awareness, interest, and action to fund the training, marketing support, and additional advertising required to make your plan possible.
Time is money
Some businesses decide not to invest in advertising. Instead, they direct resources at networking, community and industry trade shows and events, online communications, to establish contact and interact with customers and prospective customers.
That doesn’t mean they aren’t investing in marketing. All of the above are types of marketing plus they’re investing time (and supporting dollars) rather than relying exclusively on costly and traditional advertising vehicles.
Expert or education
Following on from money or time, comes the decision to hire an expert or to DIY. For small businesses it’s a tough decision. Weigh up the time it will take for you to DIY and put a dollar amount on it. Next, ask yourself: do you have the capacity to do it well? If you don’t have the knowledge or expertise to DIY, hiring a professional always works out cheaper in the long run. If you do have the time but not the expertise, invest in short courses to skill up in the area you want to manage and learn how to do it well. Check out this recent article from Social Media Today about agency V in-house social media management.
Food for thought
Like anything in business these things take time. Give at least 6-12 months to get a better picture of what’s working and what isn’t. All marketing strategies are works in progress. For them to be truly successful you need to follow the strategy and monitor, test and measure regularly.
For service based businesses every time the phone rings or you receive a new lead you need to ASK the question: how did you hear about us? If you mostly get referrals, but you’re investing in social media and email marketing – ask yourself, do my marketing efforts build a relationship and communication therefore making it easier to refer business?
See you next week,
Darnelle
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