The “Profits Leak Detective Newsletter” offers regular tips and strategies to help you identify and plug those leaking profits.
| How much of your revenue should you spend on marketing? |
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That's a question I often get asked by clients. And of course there is no easy answer. In my experience for most small businesses there's not even a process by which they decide. More often than not, SMEs equate advertising with marketing and base their budget on a combination of what they think they can afford and what they spent last year. Rarely is it based on the results they wish to achieve. While you shouldn't spend more on marketing than the returns warrant, haphazard budgeting for marketing will produce little return for the investment over time. Before moving on to a process you could, or should, follow I can tell you the average expenditure of small businesses in various industries in Australia according to financial benchmarking studies. For example:
There's a fair bit of variation across these industries. Are these a good guide? Well, probably not, because as mentioned above the expenditure is probably not the result of a planned process. Could their marketing expenditure have something to do with their performance? So marketing, and lots of it, may well be absolutely critical, and you need to develop systems you can use for new marketing campaigns. For example: An objective of an extra $100,000 in sales means; Of course that means having some data on your conversion rates from enquiries to sales, and responses to the different marketing media you use. To quote from Small Business - Big Opportunity" Sensis in partnership with Rob Hartnett "A common oversight made by many small business owners is that they simply don't measure their advertising. Even fewer actually know what they want to advertise." What you allocate for marketing and which media you use depends on your business, your customers, your location, and your industry. But at least make the effort to plan what you want to achieve. Ineffective marketing is indeed very expensive.
© Copyright 2010 Adam Gordon, Profits Leak Detective Trackback(0)
Comments (4)
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written by Adam, March 04, 2010
Thanks Tom,
A number of writers and marketers have commented that the main job of a business is to keep selling, yet most if not virtually all small businesses seem to think their job is to produce. I;m going through this yet again with a client.
... written by Tom "Bald Dog" Varjan, March 04, 2010
Brilliant post, Adam.
The difference in marketing budgets is staggering. It shows that so many small businesses don't fully understand marketing, hence shy away from investing in it. So, they rather assemble armies of super-aggressive peddlers and and send them out to dial for dollars and tear down doors to harass the market with their retarded sales pitches. Is it surprising that buyers build stronger and stronger peddler fodders (gatekeepers and purchasing departments) that spew out FRPs faster than a machine gun spews out bullets. And these poor souls, the sellers, spend an inordinate amount of time, money and energy to respond to these RFPs, not realising that with good marketing they could position themselves, so buyers would go to them ready for business. Not to mention that at the end of the day, businesses would be financially better off by investing in marketing. Without marketing, they spend their money (which they don't even tract because standard accounting doesn't track them) on pursuing apathetic suspects. Write comment
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In a marketing-light and sales-heavy business we chase after the market trying to sell them something they may not even know or heard about. The business' mantra is: "We're the best and we want to do business with you."
In a marketing-heavy and sales-light business the market gets to know us as respected experts and seeks us out for help on its own volition. The market's mantra is: "We've heard you're incredibly good. We've heard you're obscenely expensive. And we've heard you're worth every penny you charge. When can we start?"
Yes, money exchanges hands during the sales function, but it's vital what precedes the sales process.
Using farmer language, the sales process is the harvest. Marketing is ploughing the land, planting the seeds, nurturing the seeds, fighting the thieving birds and hungry worms, etc. And this is what so many smaller companies don't want to do because it costs money. Yes, but the bountiful harvest justifies it.
I don't think one business is 100 times profitable than the other one because it has 100-times more peddlers roaming the land and dialling for dollars. They, using fitness language, warm up the "buying" muscles of the market with good marketing, so the selling process is fairly effortless.