At the inception of Marketing EQ in 2010, a financial advisor handed me a Harvard University Study on entrepreneurship and financial management and shared with me his most valuable pearl of wisdom for a new business – the biggest mistake a new business will is make is not factoring into the operations budget the cost to acquire new business. Did you know, in early stages of business growth it will cost your company between 20-25% of your total revenue?
While that figure may seem daunting to you (and it did to me at the time), the good news is that if you plan effectively and use a marketing budget as the expense that it is, you’ll make an investment into your business that will break your growth plateaus and smash sales records.
The value of a marketing budget is that it creates awareness, establishes brand differentiation so that you don’t get caught up in playing the price war game, drives sales, and captures and keeps new customers. In short, it’s a key factor in achieving and getting ahead.
Of course, you want to make sure that you aren’t just throwing your money to the wind. Professional marketing and media planning can help your company strike a balance with your marketing spend and protect your investment in your company.
It’s a normal operating expense, so why does it feel extraordinary?
This ordinary business expense, in accounting terms, is considered “below the line” and falls into SG&A (sales, general and administrative). Then why do so many companies treat marketing as an extraordinary expense? There are many reasons, but let’s look at a few.
Confusion. It’s easy to understand the cost of office supplies like pens, but marketing can feel more ephemeral. If you don’t understand marketing and the technologies used to manage it, it can be confusing, frustrating and easy to put your money in the wrong places and convince you that marketing simply doesn’t work for your business.
Intimidation. As an increasingly mobile society, customers have quick and easy access to nearly any product and service in the world with a simple click. Add to this new technologies that deliver better experiences and now the customer is squarely in charge of the purchasing experience. Companies with big budgets can afford full time marketing staff and study big data to better target their customers. This can feel intimidating to a small business who can’t afford the time to understand the digital space and technologies used to manage a marketing presence.
Choices. Is Google AdWords right for you? Should you promote your business on social media? What are the tools that keep your business at the top of organic search? These are important questions and the answers depend on your industry, your customers, your sales and marketing goals. Establishing a realistic budget between 5% and 15% of gross or net revenue, depending on your profit model, is a good place to start. The annual budget can then be allocated to different markets, technologies or channels and scheduled throughout the year with quarterly evaluation.
Without professional media planning, small businesses often throw a small budget here and there at different products to try them out and see what “works”. In this day and age there’s no excuse for the shotgun approach or a short-term strategy. Your business cannot afford it. Your media reps can be helpful to planning but you shouldn’t rely on them as your primary planner for advertising and marketing spend.
A professional media planner can help you measure the value of the services you choose, both digital and traditional, and ensure they are targeting the right audiences with little to no wasted ad dollars. In addition, a strategic communication expert can help you define a brand strategy, plan a messaging and graphic strategy to set your company far apart from your competition. The dollars you invest upfront will yield long-term benefits. A do-it-yourself, homegrown approach doesn’t cut it in our sophisticated digital era.
Defining and growing a brand takes a firm commitment to seeking market share. Big brands don’t make large gains by idling wishing for business to walk in the door or web traffic to magically click into conversion. They develop strong tactics to acquire consistent market share. It takes professional expertise to create top-of-mind awareness so that when the customer is ready to buy they will remember you AND find you.
Government spends 10% on advertising and marketing, Furniture averages 7% of gross sales while manufacturing may only spend 1.5% depending on the industry. The scale of economy is at play, so the more revenue you make, a smaller percentage may have a larger impact. Start small, plan well and continually look at the results to reevaluate. You will begin to connect with new audiences and understand their shifting wants and needs. Paying attention and responding effectively communicates to your customers that you listen and you care.