How much should you spend on marketing?

marketing budgetHow much should you spend on marketing is a question I get asked a lot.

Let me see if I can answer it.

There are companies who spend a huge amount on marketing. Red Bull is, perhaps, the most famous of these. The costs of running an F1 team, an international go-kart series and sponsor huge numbers of adventure junkies doesn’t come cheap. The last figure I saw was 38% of revenue.

At the other end, there are companies who spend almost nothing. If they can get all the leads they need through word of mouth, I wish them all the best.

So let’s return to the question. Seeing as I am a consultant, let’s start the answer by asking you a question – or three.

  1. What did you spend on marketing last year?
  2. Which marketing activities delivered a positive return on investment?
  3. Did that spend lead to you achieving your growth target for the year?

The final question is the most important of the three. Your marketing is there to do one thing: generate the sales opportunities you need to achieve your growth target for the year. Once you know what your growth target is, you can work out what you need to spend on marketing to achieve that target.

So what are the steps?

Your Growth Target is…

Already mentioned but needs to be reiterated because of its importance

How many clients do you expect to lose in the coming year?

If you are to grow your business, the number, and value, of new clients needs to be higher than the number, and value, of clients you lose. If your growth target needs two new clients a month, but you are losing one a month, your marketing needs to deliver three new clients per month to achieve your target.

How many new clients?

If your growth target is 10%, what does that look like in terms of new clients? The value of an average client can easily be calculated (annual turnover/number of clients invoiced). I understand that your clients can range from very small amounts to very large amounts, but you need to have an average to start this process. If you want to complicate matters and say you need X large clients and Y small clients, it’s not a problem, but you are making life hard for yourself. Partway through the year, you will need to assess your performance and adjust things if you find you are only picking up lots of small sales, rather than the mix you normally have.  If you are just picking up large clients, your problem is delivery resource rather than marketing activity.

How many leads?

For every sale you made, how many leads did you do sell to?  To deliver on your growth target, you need to generate enough leads to close enough sales (total number of leads last year/total sales). Now you have this figure, simply multiply it by the number of sales you need to make.  You now have your lead target for the year.

Which marketing channels worked best?

If you only use marketing that you know works, you maximise your return on investment from marketing.  If you continue to use marketing tools that don’t create leads, you are wasting money and reducing your ROI. How much did you spend on each channel and what was the ROI for each channel?

Is that enough?

If you simply repeat the marketing, that worked, you did last year, it is likely you will get a similar number of leads to last year.  Is that enough for you to hit your growth targets?  If not, how many leads are you short of your target?

What else?

What can you do that you didn’t do last year?  It may be that you can simply increase the amount of activity on the marketing channels you know worked.  If email marketing delivered 200 leads last year, and you need 300, is it likely that doing 50% more email marketing will deliver the leads you need?

The alternative is to do something new.  How much networking do you do?  Does your target audience go to trade shows and exhibitions? What do you need to spend on these to generate leads?  For new marketing activities, you will need to estimate, but I am sure that people within your network will have done them, so will be able to give you good advice to help with this.

What is the total cost?

By adding the spend for each channel you plan, you then have your marketing budget.

The question then is: do you want to spend that much?  The answer to that question depends on how important your growth target is to you.


Don’t stop Marketing for the summer

Have you stopped marketing over the summer?

  1. Everyone’s away for the summer.
  2. Nobody makes any decisions over the summer
  3. There’s no point in doing any marketing over the summer

Every year I hear the same old reasons for not doing any marketing over the summer. Let’s have a look at this in more detail and see whether there is any benefit in not doing any marketing over the summer…

There are 39 million people of working age in the UK (removing those under 18, in education and of pensionable age). There are 5.5 million businesses in the UK, of all sizes. Let’s keep the maths simple and assume one decision maker per company, so 5.5 million decision makers.

The school holidays are six weeks long (give or take a day or two). Most people try and spread their holidays through the year, so will have two in the summer and the rest another time.

If 5.5 million people have two weeks off in the summer, there are still 4 weeks where they are at work.

During this period, they will have problems they need solving. Their IT and telephones will have problems. Some companies have their year end at the end of June, July or August, so will need accounts doing. Many companies will refurbish their offices “whilst everyone is on holiday(!)” and some may even look to change their marketing consultant…

The whole country is not like Vauxhall’s Luton plant where everyone is off for the last two weeks in August. The UK isn’t Paris, that does apparently empty during August (leaves more room for the tourists)

Now let’s think about when people “return” in September. All of a sudden they are looking for help with all the issues they didn’t resolve over the summer. Who are they going to use?

  1. Their usual supplier, even if they haven’t been doing that good a job (wouldn’t be an issue if they had been)?
  2. The company they’ve never heard of who first contacts them on September 1st ?
  3. The company who has been communicating with them for the last few weeks or months, perhaps sharing useful information and case studies, showing they understand that prospect?

By maintaining your marketing activity throughout the year, you are doing X things:

  1. Developing and maintaining brand awareness, so that prospects recognise your company name when you pick up the phone.
  2. Demonstrating you can deliver consistently. If you can deliver a regular stream of marketing activity, it’s likely you can deliver consistently throughout the business.
  3. Showing your target audience that they are important to you and that you want their business.
  4. Keeping your company in the backs of their minds, so when they do decide to look to the market for a supplier of what you sell, you are highly likely to be one of those they talk to.

Every day we are exposed to 1,000’s of messages and there is only so much room in our heads for all those messages. Some we will automatically filter out, simply because they are never going to be relevant. Others will be pushed out, simply because we run out of storage space. If you aren’t replacing and reinforcing your messages in the minds of your target audience, you run the risk of them forgetting about you just at the time they decide they need what you sell. If your competitors have been making lots of noise over the summer, guess who they will be talking to.