How much should you spend on marketing?
As a marketing consultant, the most common question people ask me when they call is, “What’s it going to cost?” Which is kind of a funny question, because although I can generally ballpark the cost building a marketing or business plan, what people really want to know is “What’s it’s ALL going to cost…as in…ALL this marketing stuff I should be doing…what’s THAT going to cost?”
But really, how do I know whether they want me to help them get one or two new clients, or make them famous around the whole of North America? While planning costs will vary somewhat, the implementation costs are what’s really different.
Now, some marketers will tell you there should be a rule about it – like 3 to 7% of revenues. And that’ll work for perhaps maintaining a level of sales for a well-established business. But a lot of clients are looking for big growth – as in, “Let’s see if we can double ourselves in the coming year” – or more. And do you think 7% of existing sales is going to do it? Probably not. Furthermore, if a company is new, and has no sales to speak of – does that mean they should spend 7% of nothing? Of course not.
Here’s an example. One of my clients recently realized they needed a brand new client base – they’d been relying on one big account for too long, and that big account was looking shaky. They knew they needed a major change to make their sales targets – so we put a business plan together – and then they went out and convinced an investor to lend them a large wad of cash which they invested entirely in advertising. Yes it’s taking a chance – but it paid off – many times over. And the cost of the campaign worked out be about 8% of the initial sales it brought in…mind you, those new customers will be customers for years to come, and the real cost vs. sales is therefore much lower. But they had to dive in first, and the sales came after.
So the answer to the “what’s the marketing going to cost” is this: “invest whatever you can get your hands on” and base it on “the sales you need to make” or on “what you can reasonably deliver” with the people you have (or can easily get). If you’re still dying for a rule of thumb, I believe that a growing business should expect to spend 10% or so of what they WANT to make in revenue for the UPCOMING year. But that can still vary widely based on your industry and profit margins. If someone is willing go for 20%, then I’d be hoping the results could well be paying off for 2 years or more to ensure a good ROI.
So go ahead and make your own rules about what you should spend, and what you need to make in revenues (and margin) to ensure it’s worth your while. If you spend wisely – and the marketing works – you can spend as much as you want. The cost really is up to you.
PS. Visit our FEES SECTION if you want to know our costs of building your marketing or business plan.