Justin Jacobs of Hudson, Ink, provides some useful marketing budget benchmark numbers in a recent eletter. However, before you rush off and say these numbers are right for your business, consider Jacobs’ market — he focuses on residential service contractors dealing primarily with consumers, not other businesses.
Aggressive marketers hit hard with larger investments (6-8% of total sales), with a preference toward Direct Response. Moderate marketing investors seek balanced investments (4-6% of total sales) between DR and All-Purpose or Image. Conservative marketers limit expenditures to 2.5-4% in total sales – with a preference for Image and Retention.
You can see that even within his specific focus/market segment, Jacobs suggests that one-size-doesn’t fit all.
However, these benchmarks still are useful because they will tell you if you are wildly off track in how much you allocate for marketing.
At the extreme, I know of some successful small businesses which spend close to zero. They “rely” exclusively on word-of-mouth and repeat clients. Of course many contractors who spend virtually zero on marketing in fact are paying far more than eight per cent — they are getting most of their business because they’ve severely under-priced their services. If they deliver excellent work, at really incredible prices, they presumably can be so busy that they “rely” on word-of-mouth — only to eke out a living by crashing near the bottom on earned revenue for their work.
Another perspective on marketing expense is to consider the relationship between sweat and cash equity, and the advantages of learning how to do some things yourself and outsource others. These matrix equations can be truly challenging, because these options also must take into account your passions, exceptional talents, and how much your time is worth.
As an example, I would say we spend in cash one per cent or less of our direct funds on marketing, with the primary costs being association membership dues and some travel costs for trade shows and events. However, we are in the marketing/publishing business so our internal resources are incredible, because each product we produce and each website we build is designed for self-promotion as well as to serve our advertisers. Add to the fact that we can produce our marketing collateral material with our own designers, and the fact that I enjoy marketing activities — because after all, why would I start a business that I didn’t enjoy — and the sweat equity becomes huge in terms of time, but not in real cost.
Safely, however, if you are spending less than 2 per cent of revenue on marketing (based on your business being well established and you are dealing with high-volume clients), you are probably cutting corners too hard. If you are blowing more than 8 per cent to 10 per cent on marketing, you are playing a serious client churn game — because your delivery costs will need to be inflated to such a degree that I can’t imagine happy customers staying with you and returning for more.