Someone with an obvious self-interest in marketing budgets (we earn 95 per cent of our revenue from advertising sales) might want to change the headline phrase to “invest” and encourage you to put as much money into the process as possible.
But I’ve learned some time ago that the amount you spend/invest turns out to be far less important than how and why you make your marketing decisions.
You can blow a bundle on ineffective marketing, and invest an equally “small” fortune and do quite well.
The difference comes down to planning, testing and measuring.
Here are two examples to demonstrate the point.
The least expensive (“free”) marketing arises from inbound inquiries from referred and repeat clients. Some small enterprises rely exclusively on this soft marketing — and they perhaps achieve results by underpricing their services and overdelivering on quality. (The two traits are not mutually exclusive — a sole-operator or very small business without overhead costs and who undervalues his/her time/capital may at the same time deliver exemplary service and quality. And word doesn’t take too long to get around, and soon, the person has more work than he can handle.)
A larger business invests hundreds of thousands of dollars in media buys, search engine optimization services, keyword advertising and more . . . and the marketing costs 100 (or more) times per customer the first example. Instead of perhaps paying zero to $1.00 per lead, this operation pays $200 per lead, and one in five converts, so that is $1,000 per customer. The average profit on sales (after operating costs, overhead, and taxes) is $1,500. So the business isn’t wasting money on marketing — even if it is expensive.
The challenge for most businesses arises at the transition point where the free marketing ends and the costly stuff begins. In the first example, if the organization wishes to grow, it will have to hire employees and build infrastructure that add to costs –so the pricing advantage disappears. It is hard to maintain the personal service quality, and you might never be able to replicate the care and attention you give your clients as a small start-up.
And then, without testing and experience, the marketing seems to flounder; money pours out but few leads emerge, and the cost per lead is way above the budget . . . . ouch!
Is there a cure to this problem? There can be two options; cooling the expansion, and carefully allocating marketing resources where you can keep costs reasonably low while testing, evaluating and experimenting until you know the marketing model works effectively.
I think if you wish to really solve the challenge you will need some unbiased mentoring. Options include working with your relevant business association to connect with non-competing peers in other (but similar) markets, and listening to consultants who aren’t pushing specific products or services.
So how much should you spend on marketing. As much as you are satisfied that there will be a return on investment, and that suggests at the start you should spend much more on research than media.