One of the questions I get asked most frequently is, “How do I determine a marketing budget? What should my marketing budget be for online marketing?”
First of all, right off the bat, never ask a marketer that. Don’t ask a marketer that, because if you ask the wrong one, chances are they’re going to take you to the cleaners. Secondly, marketing budget is not up to them – it’s up to you. Only you know your business; only you know your objectives; and only you know your financials.
So, the answer is not 10% of your gross; it’s not 15% of net; it’s not even 20% of your sales each year – it’s, what are you comfortable spending; how aggressive do you want to be in marketing? Based on your customer lifetime value, your financials; how much are you willing to spend and how quickly do you want to grow? You have to be able to answer those questions, because a marketing budget is an arbitrary number; it’s not a set percentage.
Think about it like this. You’re not going to be spending money on marketing if it’s not working. If you’re not getting a return on your investment, why would you keep doing marketing? You have to know your numbers, and if your marketing is working, you should be wanting to spend as much as you possibly can, just like putting money in a bank. Anytime you put money in your savings account, you’re getting a return on that investment; you’re getting interest back. The same is true with you marketing budget. Anytime you invest in your marketing, you’re getting a return on your investment in new clients and profits, so you need to think about your marketing that way.
When people call and ask how much they should be spending each month with online marketing, I always answer their question with a question. What’s your goal? How aggressive do you want to be in growing your business, because marketing is truly the fuel in your business growth. You have to keep filling the tank in your business every single month, and if you’re one of those guys who just does 5,000 fliers in March and that’s it; that’s your marketing for the year; you know that you start to run out of fuel later in the season. Marketing is something that we do every single month; it’s something that’s ingrained in our businesses; we’re always doing it. If we want our business to grow, we’ve got to invest in our marketing.
At different stages in your business, you might have different growth goals. Early on, you’re probably going to have a very aggressive growth strategy. You’re going to be reinvesting all of your profits back into the business, back into the marketing, because growing is what you’re trying to do at that period. You’re trying to get as many clients as you can; you’re trying to scale the business so you can hire more employees, grow, become more profitable. So early on, you’re absolutely going to have a very aggressive approach to marketing. Your goal is to get as many clients as possible, so you’re going to be spending a high percentage of your income in investing that right back into marketing.
Later on, you might have a different goal. You might have reached a certain point in your business. You might be doing a couple of million a year and you’re taking out a comfortable salary in profits, and you’re happy where you’re at. You don’t really want to work any harder; you’re happy where you’re at. That’s fine too. In that case, you might have a slower growth strategy, so your investment in your marketing each month is going to be a little bit lower. Only you can decide what strategy you want to take.
We work with clients that have both goals. Both of them have different goals. Some of them are very aggressive. They’re reinvesting everything, every month, after they take out their salaries. They’re reinvesting everything back into their marketing, new marketing channels, every single month. On the other hand, we have several clients that have reached a level of success. They’re bringing several million a year, and they have a smaller percentage marketing budget. They have a smaller marketing budget each month. They are taking out of their business more in profits than they’re investing in their business into their marketing. You have to decide what is best for you. Choose a marketing budget that you’re comfortable with. There’s no rule of thumb; only you know your financials.
This is the key – I want to reiterate this – know your financials. You need to know how much a customer is worth over the lifetime of that relationship with you. You need to know how much a client is worth and how much you’re willing to spend to acquire a new customer. That’s rule one. You have to start there; you need to know that number. After you know how much a client’s worth, you can decide how much you’re willing to spend to get a new customer. It always costs money; there are no free customers. Even when they’re referred to you, you have to invest time and energy in giving them an estimate, signing them up, and everything else that you do. You need to know your numbers. That’s the key.
Any marketer worth their weight is going to make recommendations on the budget you have to work with. They’re not going to push you into a plan that you can’t afford or isn’t right for you. This is the number one thing that I see a lot of marketing agencies and so-called SEO companies out there doing. They’ll try and sell you on a marketing plan that isn’t right for your business objectives, that isn’t right for your size of company. If you’re a small company, you should not be investing hundreds of dollars every month to have somebody do a social media campaign for you. You need to determine what your objectives are and find a marketing agency who can apply they’re right marketing strategies at the right time to achieve the goals that you’re trying to accomplish, with the budget you have to work with.
Just to recap, start by knowing your numbers. Know how much a client is worth to you over the lifetime of their relationship. Usually probably about three years you’re going to keep a client, on average, if you have good service. Then decide how much you’re willing to spend to acquire a new customer. Choose a marketing budget that you’re comfortable with spending each month, and you need to allocate a set amount each month. You don’t want to get in a situation where it comes the slow season and then suddenly you have no money to market your business. Every single year I see companies that don’t do any marketing in March, April, May – the three most important parts of their season – because they didn’t know their numbers; they did not budget in advance. That is a terrible way to run your business. Know your numbers, budget for it, have a set marketing budget every single month.
After you have a budget, you can choose the best marketing strategy that fits your budget and the goals that you’re trying to accomplish. Any marketing agency that’s worth their weight, that isn’t trying to sell you crap that you don’t need, they’re going to make the best recommendations they can for the budget you have to work with. It’s not up to them to tell you how much to spend; you need to decide that first.
Then of course you have to track the return on your investment. You need to know which marketing strategies you’re implementing that are the most effective, and then after you know this number, you can reinvest in your marketing. You can reinvest in the marketing strategies that are the most profitable and start to scale, because as you invest in your marketing, your business is going to grow, you’re going to get new … more clients, you’re going to get more profits, and you can reinvest that new money back into your business, expand your marketing campaign to build upon itself, and start getting into some additional strategies that you haven’t started using yet. Remember, using multiple marketing methods is going to multiply the effectiveness of your marketing. Doing offline marketing in conjunction with online marketing is going to make both of them more effective.
Marketing is the gasoline in your business engine, and you have to keep filling the tank if you want to get to your destination. If you want to reach your business goal, you have to keep filling up your tank; you have to keep reinvesting in your marketing. That’s how we grow. It’s not a one-time thing; it’s an every month thing; it’s an every day thing.