The other day I received this question from a client who was generating just shy of a million dollars in revenue: “I want to double sales this year. Last year I only spent about $6000 on marketing. Today our leads are mostly referrals, but I’m looking to double the budget this year because we’re looking to double our revenue. Where do you think I should best invest this money?”
There is a swath of gross ignorance on this subject and a horribly inaccurate expectation around how much you should invest in marketing in relation to your revenue goals. So let’s get some accurate thinking around the true cost of client acquisition and how it affects marketing planning.
Client Acquisition Does Cost Money
First off, expecting a $1 million increase in sales for a $12,000 (assuming he doubles his budget) investment is unreasonable. That is unless you have some unusual ace up your sleeve like a strategic partnership willing to walk you into new accounts (which often takes a huge amount of time resourcing), or a massive whale of a client (risky). But this “no investment” or thin investment approach to business growth is like expecting a farm to produce double its crop without investing in seeds, fertilizer, irrigation, and weed control.
The first question I always ask when building a marketing budget is “What are your revenue goals?”. Then I ask to see their pricing. This way I just work backward based on lead development and close rates.
I do this because in most cases, business owners have no line items for marketing or sales costs worked into the products themselves. Marketing is expensive, but if every product or service you sell has a percentage of margin allocated to the marketing and sales of that product, you’d know how much you can spend to start really selling, and it would be a leading indicator you would be happy to pay!
Back to reality. It took this client 6 years to get to almost a million dollars with practically ZERO investment in marketing. Impressive. But before this founder can start dreaming of a bigger bank account, he needs to decide how much of that revenue he needs to dedicate to doubling it. And it’s not going to be $12,000.
Let’s say for this example that his MSP agreements average $40,000 per year with 50% Gross Profit. It’s not unreasonable then to invest $2000 to get that account. And the more you invest in marketing efforts, the faster you can build your business. This is no different from any other investment decision. To add 25 new clients (1MM / 40,000), he needs a total annual marketing budget of $50,000. That’s a heck of a lot more than $12,000. And it assumes that he has his core marketecture (website, marketing automation platforms) established.
But what about free, online social media marketing?
In my experience, the free or nearly free, online‐only, social media approach to marketing business is a fantasy. It simply doesn’t exist. You can post all you want, but if it doesn’t accompany a strategy of acquisition, you’ll be talking to the same 150 people who follow you on LinkedIn: your employees, your aunt, your 2 favorite clients, and a couple of competitors. When selling to C‐level executives and business owners, you’re not going to get appointments by tweeting and sharing Redmond Mag’s most recent Microsoft news. Will you get some? Sure ‐ even a stopped clock is right twice a day. But if you want to get appointments at the C‐level tomorrow, you need to do more than free social media.
Build your marketing budget
With all that said, the best way to develop an appropriate marketing budget is to first determine what a client is worth to you—in sales and profits—and from that, calculate what you can invest to acquire that client.
The fact that marketing is something business owners just won’t invest in perplexes me. Technology consulting companies will spend tens of thousands of dollars on monitoring software, analytics solutions. You’ll build portals, and spend countless hours on automation, but then you get completely buttoned up when asked to spend the money to acquire the customers that justify those tools. Why?
To be clear, I’m not suggesting that you shouldn’t invest in the tools, software, staff and resources you need to deliver the services you sell; I’m pointing out that you need to have an adequate and at least equal investment into sales and marketing if you want to see significant, rapid growth.
The tale of two marketing budgets
There should be two marketing “budgets” you manage. One is for generic, non‐ROI‐based collateral you need. That would be business cards, your website (minus the advertising dollars you invest in driving traffic, which is a different cost), sales brochures, client thank‐you cards, and gifts, etc. That can be a percentage of overall sales in the range of 5% and is classified as general overhead.
The next budget should be based purely on performance and is for driving measurable sales. Example: Google AdWords. If you had a Google AdWords account that was delivering you $100 in sales for every $10 invested, why on earth would you cap that? If you’re smart, you’d invest as much as possible into that campaign because it was delivering a positive, measurable ROI. It’s no different than if you owned a magic vending machine that spit out $10 bills for every $1 you put in. How many dollars would you insert into that machine? Answer: As many as you could physically get your hands on! Heck, if it was spitting out $1.25 for every dollar you put in, you’d still put in as many dollars as possible. So the only marketing you’re “spending too much money on” is the marketing that’s generating a negative return.
It’s simple, right?
Successful marketing is not all about where you put your message; it’s the combination of where you put it and what you say. That is called positioning. And it’s hard. Positioning is where ROI and creativity meet. It’s why people generally hate marketing; they don’t understand it. The best marketing is a combination of art and science. With a sprinkle of psychology.
But no matter what. . . It costs money. And if you want to double your business in a year, you’ll need to add it in a meaningful way.
Want to learn more about positioning? I want to tell you. Head over to Paper Sword and download our toolkit on how to get started with your marketing. It’s right on the Home Page. I put together a few resources to get you started:
1. Write your one-liner so you can talk about what you do
2. Website guide so you can actually start converting on your website
3. Story Brand Worksheet to help you position your products and services
4. LinkedIn social selling – how to actually use LinkedIn to get leads
And if you’re reading this and want to get started making a marketing budget, book a call with me. I’m happy to help you through it.