How Much Should a Small Business Spend on Marketing – Part 3: Starting Up
In Parts One and Two of our series on understanding marketing costs, we dealt with getting a handle on the financial impact of your marketing programs and using key metrics to make sure your business does not overspend on marketing. Those first two articles were geared towards existing businesses who wanted to optimize their marketing spend.
Now we’re going to switch gears and tackle another question I hear frequently.
“I’m just getting started with my business. How much do I need to spend on marketing?”
Of course, different types of businesses have different needs. But let’s go through the top seven typical marketing projects a small busines might need to get done right from the start.
Disclaimers: Prices quoted represent a rough ballpark figure from high-quality marketing service providers in a medium-sized city. Marketing professionals in larger markets tend to charge more. Also note that these represent costs that a small business typically pays; large corporations and public companies work with national-caliber ad agencies and design firms which add a zero or two to these costs. Finally, these cost do not include printing or other production, nor do they include media costs.
Project #1: Research & Positioning
One of the first tasks you need to undertake is to understand who your customers are, what they want, who else they could do business with (besides you), and how you are going to differentiate your company from the competition (i.e. “Brand Position” or Unique Selling Proposition). A marketing consultant might charge $5K-$10K for this.
Project #2: Brand ID Package
Next you need to translate your Brand Position into something tangible. A Brand ID package would include naming, logo design, signage, brand colors, business cards/stationery templates, invoices, forms, and some consulting about how your store or office should look. Cost: $5K-$10K. Yes, I know you can go online and find someone who will knock out a logo for you for a couple of hundred bucks or less – but these logos will be generic and not represent your brand position. They are just not worth it.
Project #3: Marketing Blueprint
You can call this a “Marketing Plan” if you prefer, but I find that a action-oriented Marketing Blueprint is much more useful than a 40 page document that gets stuffed in a drawer some place. The Marketing Blueprint has three main sections: Strategy, Tactics, and Measurement — and outlines pretty much what marketing activities you’ll focus on for the next year. Cost: $2.5K-$4K.
Project #4: Basic Print Collateral Package
Your business may need a brochure, folder, product info sheets, staff photos, store photos, yard signs, door hangers, or other basic print collateral. If you decide to invest in a Yellow Pages ad, throw that in the mix as well. Cost: $3K-$10K.
Project #5: Website: Design/Writing/Coding
A basic SEO-optimized site, either hand-coded or (better yet) built on the WordPress platform should run you between $5K-$10K. Note that this is for an informational, lead generating website — not a heavy-duty e-commerce or other database intensive site.
Project #6: Social Media Start-up & Training
The Holy Trinity of Social Media is Facebook, Twitter, and your Blog. If you are not adept at these tools, hire someone to set you up, build customized pages and graphics, outline a 90 day content plan, and train you or someone on your team to use social media to build better customer relationships and get leads. Cost: $5K-$7.5K.
Project #7: Video Package
In case you haven’t noticed, video is taking over the Internet. YouTube is now the #2 most widely used search engine — and the number of online video viewers grew over 10% YOY to 141 million unique viewers in February 2010 (according to Nielsen). This means that nearly every business could benefit from a package of short videos that allows potential customers to learn about you and why you are great — from the comfort of their own laptop. Cost: $10K-$20K.
So there we go. Seven fundamental marketing projects to get a brand new business off the ground.
Did I miss anything? Leeave a comment below.
How Much Should a Small Business Spend on Marketing – Part 2
In our last post, we discussed the concept of using key metrics to make sure your business does not overspend on marketing.
As an example, we calculated the profit per customer for a hypothetical kitchen remodeling business at $2,000 and decided we could spend some amount less than $2,000 to acquire that customer. But how much less? The answer to that depends on your tolerance for risk.
Let’s play with a spreadsheet and a hypothetical magazine ad for our business.
A local magazine targets homeowners and they charge $1,850 for a magazine ad that reaches 117,000 people. Some tiny percentage of those people might become leads by calling us or visiting our website — and then some small percentage of those leads might take action and become a customer.
After we run the ad and carefully track leads and customers, we fill out a spreadsheet like the one above. We see that 1/4 of a percent of the magazine’s readers (293 people) expressed interest in our kitchen remodeling service by calling, visiting our website, or stopping by the showroom. We can then calculate our cost/lead (the cost of the ad divided by the number of leads).
Let’s further assume that out of those 293 leads, we got three new customers. In essence, for our $1,850 investment in the magazine ad, we got three new customers (at a cost of $632.48 per customer). Note that the numbers above are both hypothetical and rounded.
On the surface, that seems like a decent deal. We pay $632 for a customer that’s worth $2,000. That leaves us a profit of $1368.
But…
There is a certain amount of risk that arises from this magazine — in the form of variable factors that could cut our results significantly from month to month. Maybe the magazine has a bad cover one month and its retail sales tank. Those 117K readers turn into 85K. Maybe our ad placement in the magazine isn’t that great. Or the article next to our ad depresses people. Maybe the stock market drops and fewer people can afford a kitchen remodel.
Is $632 too much? It depends on how risky you think your particular marketing program is. If you’ve advertised in this particular magazine for 6 months and your cost/customer never varies all that much, it’s probably not very risky to continue.
Personally, I prefer cost/customer amounts in the range of 10%-20% of profit. This provides more of a safety net just in case the program doesn’t perform as expected. So in our kitchen remodeling example, I’d try to find marketing programs that worked out to a $200-$400 cost/customer or less.
Just for fun, let’s try to run a Google AdWords (pay-per-click) search marketing campaign. We’ll make it simple and say that we buy the search term “seattle kitchen remodel” (since our hypothetical company does business in Seattle). As I write this, Google estimates that the cost per click (CPC) for that search term is $2.28. Let’s keep the same ad spend ($1,850) which translates to 811 clicks to our website (leads).
Now, everyone who clicks through to our website is a targeted lead. After all, they were searching for “seattle kitchen remodel.” But there’s always a certain amount of competition on Google, so let’s say our conversion rate from lead to customer is 3/4 of a percent (0.75%). That works out to six customers at a cost/customer of $304 — which is more in my comfort zone.
Professional marketers spend much of their time testing marketing programs — and now you see why. The goal is always to reduce cost/customer (customer acquisition cost), but maintain or grow the volume of new customers — and do this all in a reliable, predictable way day after day. This isn’t easy for a number of reasons (including imperfect tracking of customer source, for instance), but it is the only way you can avoid overspending on marketing.
In Part 3 of this series, we’re going to discuss start-up marketing costs. Stay tuned.
How Much Should a Small Business Spend on Marketing?
This is Part 1 of a two part discussion.
How much should a small business spend on marketing? As a small business marketing consultant, I get this question a lot.
While, at first, this might seem like a complex question — or one that has different answers depending on the business or industry, the answer really is pretty simple.
A small business should spend the least amount possible in order to achieve their profitability target for the year.
The key to looking at marketing spend is to think like an accountant, not a marketer or small business owner.
An accountant might look at various key metrics for your business:
- Revenue per customer
- Customer acquisition cost
- Profit per customer
You can utilize these metrics to determine how much you should spend on marketing. The guiding principle (which seems obvious) is don’t spend more to acquire a customer than you make from that customer.
Here’s an example. We’ll simplify things a bit.
Let’s say you own a kitchen remodeling business. You get all your business from referrals, so you don’t really spend anything on marketing. The problem is that for the past three or four years, your business has been flat — averaging between 70 and 80 customers per year.
You look back at your records and saw that last year you had 75 customers and total revenue of $425K. That works out to an average revenue per customer of $5,667 — which makes sense to you, since most of the jobs that you do are in the $5K-$6K range.
When all is said and done, you net about $2,000 per job after expenses (materials, labor, etc.).
So — if you never had to pay a penny to acquire a customer (zero customer acquisition cost), you’d make around $2,000 profit per customer.
But… you are not happy with just 75 customers. You know that some of your competitors have 100-150 jobs per year.
You realize that you need to implement a marketing program in order to acquire new customers. Your goal is to acquire 25 incremental customers over the next year — at an average job size of $5,600. This works out to additional revenue of $140K. But how much is it going to cost you to get these customers?
Since you make an average of $2,000 per customer, you know that you can spend some amount less than $2,000 per customer. But how much less?
We’ll answer that question in Part 2 of this post. Stay tuned.
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