Are you spending enough on marketing?

7 replies
Here is a snapshot how several publicly traded companies spend on marketing as a percentage of revenue. Are you spending enough?

If you have no budget, think about it in terms of time. How much time are you spending on marketing as a percentage of your working hours.

#marketing #spending
  • Profile picture of the author Claude Whitacre
    Let's bring this down to an example we all understand, a small Mom & Pop business. How much should they invest in marketing and advertising?

    Many of us here own a small business. How much should we invest in advertising and marketing? What percentage of revenue is the magic formula?

    What is your advertising budget? How much do you set aside for marketing?

    My idea is that this very concept is wrong.

    What is the purpose of marketing? Let us assume that your purpose in marketing is to generate new customers, and make a profit......meaning the marketing effort generates more profit than it costs.

    Lets say you ran an ad, or bought PPC traffic, or created a promotion....

    And let's say that you are intelligent enough to track where your new business is coming from....

    Your marketing efforts will either generate a profit, or sustain a loss. I don't mean you marketing as a whole, but each individual promotion effort.

    If you buy $1,000 in ads, or leads, or can track your eventual sales, back to the source. What if you have a $1,000 monthly marketing "budget", and if you generate $100 in profit? Do you spend another $1,000 next month, doing the same thing, just because you have a budget?

    It isn't "How much you spend"'s "How well you track".

    I own a retail store. I speak to groups of business owners who also own a retail store.I ask them, "Who here has an advertising budget?" Hand go up. Usually it's the better retailers.

    And I ask, "What is the percentage or dollar amount?" Usually, I'll get percentages, usually from 15% to 30%. And I'll ask, "How did you arrive at that formula?"

    "I read it in a book/was told that by my Marketing Professor/went to a seminar...." is what I'll hear.

    But they are wrong, in my opinion.

    You invest in marketing to create additional profits, on new business. And you track those sales to the original promotional source.

    For the last dozen years or so, my advertising and marketing budget hovers around 2% of gross sales. Why so low? I didn't set out to spend so little. I didn't choose that number.

    After testing advertising media, different ads, different promotions, tracking results, I found out something. I found the marketing methods that generated a profit. And I found the law of diminishing returns.

    If I spend $1,000 of PPC ads, I may double my money. But if I spend $10,000 on PPC ads, my business goes up by 50%. Ten times the cost for only a 50% increase...and a net loss in income. I found that locally advertising in 5 different media at the same time doesn't increase my business by 5 times.....but only by about 10%. That realization cost me thousands of dollars to learn, and has saved me hundreds of thousands of dollars in the last 15 years or so.

    What I have come up with is a series of ads and promotions (online mostly) that costs me 2% of my gross sales...but generates 40% of my new business.

    This is no magic formula. Your results will be wildly different, I'm sure. But if you seriously track your advertising results, and discard the ads that don't pay...and increase your ads that do pay.....and stop spending, when it's no longer profitable....

    Your marketing budget will evolve.

    One of my main supplier reps visited my store a few years ago. I was doing about half a million dollars a year in business, at the time. He said, "Claude, you could easily grow this business to a million dollars a year".

    I said something like, "Yup. I could double my business. My income would only go up by 20% because of the additional expense in employees and marketing. And I would have to work twice as hard, to keep the whole thing going." How did I know? Because in 2007 we actually did that million in sales. And I knew the effort it took, and the costs involved. Law of diminishing returns.

    Know your numbers.

    I hope this helps someone.
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    • Profile picture of the author ewenmack
      That's super advanced Claude...for most people.

      First as you found out from that informal survey,
      very few measure their advertising.

      Secondly, those that do, don't systematically work to make their ads
      perform better.

      Fresh eyes to take a look at what's being done,
      take what's worked outside the industry and bring it in
      can often bring big changes for the better...are
      2 ways to get more from what they are already doing.

      Most won't do those 2 things to escape their plateau.

      I was called in to a company that had their own in-house team
      of conversion specialists. See, they hit a wall and needed fresh outside
      eyes to lift sales.

      Only took me 5 minutes to see the problem
      and solution.

      Cost nothing other than a few minutes of time to
      deploy the fix.

      They split test it and after 3 days results it gave them a 25%
      lift in sales.

      Doctor E. Vile
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  • Profile picture of the author joe golfer
    Good stuff. Now let's say a prospect sees you speak at a seminar, 6 months later buys your book on Amazon, 3 months later sees a retargeted after he visited your site, and a week later sees your article in a trade magazine. Then he calls and you make a sale.

    How do you adjust your marketing spend to know what percentage of your budget (and time) to allocate to seminars, article writing for trade magazines, retargeting and book writing?
    Marketing is not a battle of products. It is a battle of perceptions.
    - Jack Trout
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    • Profile picture of the author Claude Whitacre
      Originally Posted by joe golfer View Post

      Good stuff. Now let's say a prospect sees you speak at a seminar, 6 months later buys your book on Amazon, 3 months later sees a retargeted after he visited your site, and a week later sees your article in a trade magazine. Then he calls and you make a sale.

      How do you adjust your marketing spend to know what percentage of your budget (and time) to allocate to seminars, article writing for trade magazines, retargeting and book writing?
      I'm assuming you are asking me.

      That's not a funnel. A funnel replies to a prospect specifically depending on how they responded to the last contact. I'm not directing the prospect anywhere through steps...except that they are directed from articles and videos to my books, then to set up an appointment.

      Your example can happen, but is highly unlikely. In general, whether they read a book and call me, or they see me speak and buy right's really just one step.

      I can't remember which Guru I learned this from, but one of the internet gurus who sold seminars, went from a long funnel, to a very short sales process. I think it was, buy his book for just the shipping cost (getting the credit card number, address, and phone), which led directly to a phone call from one of his reps...selling them into a $5,500 seminar.

      I know that Bill Glazer (who used to be with Kennedy-Glazer) told me that the Information Marketing Event (Maybe 1,000 attendees) was sold through a 22 step funnel, ending with a phone call from one of their reps. And he said that 66% of the tickets sold were on the phone call. To me, that's huge.

      I think a huge convoluted funnel will get the best result, and the most money per prospect.
      But a simple one or two steps will also work, just not as comprehensively.

      Originally Posted by joe golfer View Post

      How do you adjust your marketing spend to know what percentage of your budget (and time) to allocate to seminars, article writing for trade magazines, retargeting and book writing?
      Back to your question. How would I adjust my spend? I wouldn't.

      Here is the main point. These aren't just marketing methods, they are income producers all by themselves. I make money from my book sales, get paid for speaking, and am paid for consulting. My article writing is minimal (I have thousands of articles floating out there) and is mostly forgotten. The number of sales I get from this round about method is less than one a year, I would say. Most of my sales are one step, or two step.

      If one person tells me that they were a referral, from someone who watched a video, and then they read one of my books, and then saw a testimonial....I ignore the source, as it's too convoluted to reproduce to create an income stream. If 30 people told me the exact same story...I would see the pattern and create a marketing funnel for them.

      My marketing tracking was always when I was advertising, using different approaches, and different media. I no longer track my results. And I'm an inch from really retiring.

      But when I was doing my biggest business? I always tracked every sale, to its source. I did it for over 30 years. And over 90% of my business always came from just one or two sources, no matter what I was doing. But I had to keep testing, to discover those few methods, and evolve my marketing content, to keep it working.

      At this advanced stage...and age....I'm only interested in talking to people who are already pretty sold. At this point, I'm using the thrust and lift I built over the decades..and I'm just gliding into retirement.
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      • Profile picture of the author mojo1
        I just finished reading another older thread posted by WillDL that included worthy highlights parallel to several key points Ewen and Claude brought up in this current post

        "More Advice From The Other Side of a Cold Call"
        I thought about making a new thread for this, but that seemed silly.

        Another place I think this forum occasionally leads beginning marketers down is the answers they often get when asking “what should I charge for my services.”

        I’m as guilty of it as anyone since I’ll give a glib gross profit divided by ten answer. Others subscribe to my theory, but have a different number.

        The other answer they get is some variation of “Think about the amount of time the service will take you. Now decide what you want to make per hour. Charge the number that makes that work.”

        Both answers are completely true.

        Both are also completely useless BS, that don’t help our fledgling friend along at all. I don’t claim to be a financial expert, or a genius, but here is how I set prices when I was freelance.

        As with anything, the first step is research. I’m a big believer in one niche at a time. Each market is unique enough that a package that makes sense to a dentist won’t make sense to a mechanic. But inside the niche you can expect real, useful industry averages to act as your guide.

        My first question was “What is my competition charging?” If there was successful competition in the niche, my research was a lot easier. I just found out what they are charging, and their average customer life. If they kept there clients for years, then the market would bear their price. If they had a really high turn over rate, then their price was higher than the market would bear and they had a great sales system in place.

        My next question was “What is the average profit margin in my niche?” I always thought knowing this was essential, and now that I run the numbers from the other side, I know it is.

        I will tell you right now that I have our acceptable Cost per Customer on a sticky attached to the corner of my monitor. I don’t need the sticky anymore. I’ve had it memorized since about thirty minutes after I signed the confidentiality clause in my employment contract.

        I use our average fee per client and profit margin to create that number. Most decision makers have a similar formula.

        You absolutely need to know the profit margin when creating a package for a niche. Let’s say you want to create a marketing package for restaurants. You need to know that the average profit margin for a well run restaurant is 5%.

        Do you know what that means?

        If you come in with a $100.00 package, it needs to bring in $2,000.00 for the restaurant owner to break even. And restaurant owners know that.

        Doable? Easily, but you need to understand where the decision maker is coming from.

        The objection I foresee getting is that businesses already have an advertising budget factored into their cost, so I am not making an intellectually honest demand for gross return on a campaign.

        It’s a fair objection, except for one thing. The vast majority of businesses have already spent their advertising budget. It is either gone, or ear marked for a proven campaign. Which means, unless you are lucky enough to hit them when they are re-evaluating their advertising strategies, you, or the decision maker has to convince the owner to go out of pocket for the campaign. It will exist outside of whatever % of gross they have already accounted for advertising expenses until the next financial cycle. At that point they can reevaluate their advertising spending, and you can upsell if you have done a good job.

        So the restaurant owner needs to be convinced it will bring in more than 20 times its expense or he isn’t going to bite. Which means the next question has to be. “What return can the business owner expect from my service?”

        The next question I would ask was “What is my time worth?” This was answered by a pretty straight forward evaluation of my needs. I had a number I wanted to make per week, so obviously the next question was “How much time will it take me to do a great job offering the service?” I would always round up and over estimate, just to be safe.

        You notice I asked myself questions that threw out both answers we all rattle off to newbies.

        I had one last question to ask myself “Knowing the answers to all these questions, is there a price that makes sense for me and my prospective customers?” If the answer was yes, I was golden. If no, I’d reevaluate my offering or what niche I was offering it to. I wasn’t going to waste time earning less than I wanted, and I wasn’t going to waste time selling a service the market couldn’t bear.

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        • Profile picture of the author savidge4
          I perceive there to be a bit more to this than meets the eye. I will 100% agree that paid advertising as a whole is NOT exponential. I am sure you have seen some discussions I have had with PPC.... there comes a point where it diminishes.. There simply comes the point when spending more does not create equal return.

          As a marketer, understanding and having the ability to see the Apex in the spend vs return curve is crucial. Most people have a tendency to just throw more, not understanding they are returning less.

          An interesting angle I use when selling an advertising based product or service... I ask about their Tax Bracket. Advertising is a 100% expense write off. Depending on where you are at in a tax bracket there may be benefit is spending to decrease your overall bracket. In the States the brackets roughly look like this:

          $0 to $50,000 is 15% tax rate
          $50,000 to $75,000 is 25% tax rate
          $75,000 to $100,000 is 34% tax rate
          $100,000 to $335,000 is 39% tax rate
          $335,000 to $10,000,000 is 34% tax rate

          If as an example.. your company makes $60,000 in a year... to spend $10,000 in advertising could technically only cost $2500 when it is all said and done. $60K taxed at 25% is $15,000 $50K taxed at 15% is $7500. Spending the cash minimizes your tax liability so that 10K is only costing you $2500 in the end.

          I personally, and I know many small business owners that do the same, do a pre tax tax analysis. I close my books the first week or 2 of October hand them over to the accountant, and he comes back with a rough estimate. this gives me a better idea of what I need to do.. spend more, or in some cases make more before the end of the year.

          The other side of the advertising equation... Life of Customer. Again, this becomes one of those numbers you cant overly understand if you are new in business or simply don't have many "repeat" customers. But in better than theory.. if over the years your customers repeatedly use your services or buy your products.. the expense TODAY in comparison to your income TODAY is not a decent representation of the future earnings.

          So why would a company spend 20% today.. and only see 10% in return? Because that 10% represents income for quarters and or years to come.
          Success is an ACT not an idea
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      • Profile picture of the author joe golfer
        Originally Posted by Claude Whitacre View Post

        I'm assuming you are asking me.
        Thanks for the detailed response. I think some people on this board get overwhelmed with all the marketing options, and end up doing nothing, so I thought a lot of people could benefit from the experienced hands here on this important question.

        I've worked with thousands of retailers, and I can't think of too many who tested and tracked like you have over the years. Really impressive.

        I also like the short sales cycle idea. I think "brand awareness" for small business owners is expensive and vague, so your methods help people see they can track sales to various sources in one or two hops.

        But retirement? I don't believe it. Maybe from retailing, but a guy like you has to be marketing and selling something. It's in the system, like a shark needs food.
        Marketing is not a battle of products. It is a battle of perceptions.
        - Jack Trout
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