The #1 Question We Receive from Business Owners!
“How much does marketing cost?” We hear this question all the time, and the simple answer is just another question: How much do you want your business to grow?
We know, we know… that sounds like a complete cop-out, but hear us out.
Marketing is an INVESTMENT. It should always bring in more than it costs, which is why tracking your ROI (return on investment) is so important. According to Nielsen (the world’s largest market research company), the average ROI for short-term tactics is 9%. That means that if your company spends $2,500 on a new advertising campaign, you should get a return of about $2,725. However, if you have a talented marketing team or agency, that percentage will increase significantly. We’ve seen plenty of campaigns that have achieved more than 500% ROI.
For example, unless you live under a rock, you’ve seen the Old Spice “Man Your Man Could Smell Like” campaign, which launched in February 2010. For Proctor & Gamble (the parent company of Old Spice), the goal was to achieve a 15% Y/Y increase in sales. By May 2010, that goal was shattered by hitting a 60% increase. And by July 2010, sales were up by 125% (an all-time high for Old Spice)! Just as importantly, they not only exponentially increased sales, but dominated market share, becoming the most preferred brand for men’s body wash.
Obviously small businesses can’t afford to pay international marketing agencies hundreds of millions of dollars for a brilliant, nationwide, omni-channel marketing campaign. But small companies can still achieve a great ROI from the money they decide to invest in marketing.
Yet the Question Remains… How Much to Spend?
According to the Small Business Association (www.sba.gov), companies should budget between 7%-8% of projected revenue for promotion annually. However, the average small business in the U.S. allocates only 1 PERCENT!
Many business consultants suggest that marketing budgets should be even higher. For companies just starting out, it takes a considerable push to build some traffic and buzz quickly. Pirate Marketing has always suggested a 10%-15% marketing budget, depending on a business’s strategic plan. Moreover, startups in certain industries (like technology) require aggressive growth very quickly and should designate 15-25% of their projected budget towards marketing tactics.
Another way to think of it is this: A company is an entity.
Just like any living entity, a company has a life cycle.
Each of these stages require a different marketing strategy. And each strategy requires a different level of investment to make it effective:
New / Start-Up = steep marketing costs (~20% or more of revenue goal)
Growth OR Decline = considerable marketing costs (~15% of revenue goal)
Maturity = status-quo marketing costs (~10% of revenue goal)
Another item to consider is the overall business goal. If a local company is currently in a “Growth” cycle, they may have a goal of 10% year-over-year revenue growth. If their existing revenue is $500K, then the growth needed only equals $50,000. Which means that they should invest an additional $7.5K to their marketing budget.
Huge, “mature” international corporations might require only a 2% Y/Y growth. If the corporation has a yearly revenue of 100 million, then their 2% goal equals $2 million in additional revenue. In that case, they should be adding an additional $200,000 to their existing marketing budget.
New startups may have a smaller goal of reaching a revenue of $100,000 in their first year. In that case, they would need to invest an aggressive 20% of expected revenue into marketing, which would be $20,000.
Additional Food for Thought
One item that business owners often forget to consider is that marketing is an ongoing investment. Short-term, one-off campaigns can produce good results, but marketing works best when it’s in conjunction with an omni-channel, long-term strategy that not only helps increase sales, but also is constantly building brand awareness, and creating new prospects and leads for future growth.
You Get What You Pay For
There’s one more idea to consider. Everyone knows the old adage: “You get what you pay for”. This is 100% true, especially when you’re asking yourself, “How much does marketing cost?”.
Yet people are always looking for a bargain. You might decide to hire your 15-year old nephew to manage your social media. You may find someone “reasonably” priced on UpWork to do your SEO. But keep in mind that it may wind up costing you much more in the long run. Perhaps your nephew has a rude interaction with your best customer on Facebook Messenger, and the customer decides they don’t want to do business with you anymore as a result. Or perhaps that affordable SEO Specialist decides to shut down your website until you pay him an insane fee. These may sound like crazy scenarios, but are actual examples that we’ve been told through the years by local business owners.
It’s hard to judge good quality without doing a bit of research.
For example, look at cars… would you rather buy a Buick, a BMW, or a Bentley?
They’re all the same color. They all have the same basic features… four tires, engine, headlights. They all have the same basic function… the ability to get you from place to place.
But this is where doing research is important. Once you start digging, you may find that the Buick is affordable, but that Buick engines only last for 5 years. Maybe the BMW uses only high-test fuel and racing tires, which will cost an additional $12,000 during the life of the vehicle, but the cars do usually last for at least 120,000 miles. Or perhaps the Bentley requires quarterly performance tune-ups at the dealership, which in the long run, will add another $30,000 in expenses, but the resale value remains high over the years. Hiring a marketing company is exactly the same. Look for a partner that offers a reliable blend of expertise, trustworthiness, and value.