Marketing is expensive, whether you are outsourcing to a third-party agency or paying to hire someone in-house. Most businesses owners understand that paying for marketing is an investment in the future, but they still want to understand how much the investment will make them from the outset before they decide to fork over any hard earned $$$ and decide which avenue they are going to take, or if they are going to invest in marketing at all. The number one question I get asked from a hopeful prospect wanting to work together is, “How much money is my investment in you going to make me, and can you guarantee results.” Most of you reading this probably don’t know how much you should spend on marketing or how much of your business actually comes from marketing. This article will help you set proper benchmarks for how much you should spend on marketing for your business and how to calculate ROI on marketing spend– a little sprinkle of marketing isn’t magic.
1. How Much Should I Spend on Marketing?
As a general rule of thumb, you should spend 10% of your gross revenues on marketing yearly to maintain your business. If you are just starting out, that number should be 15-20% of your projected gross revenue. If you have saved and are prepared to go into recession, I would also recommend 15-20% of gross revenues for the next year because many businesses are pulling back on marketing spend, and there is a ton of digital real estate that can be captured while the competition is out that can be realized for years to come.
2. What Should I Expect From a 10%-20% Marketing Budget?
It all depends on your goals. Every business and industry is different, so before engaging with any form of marketing, you want to determine what you will deem a success. That may be more followers, more sales, more traffic to your website, more specific types of sales, etc. For example, if you are a Realtor, you may only want Selling leads, so you need to create a realistic goal for how many Seller leads you to want your marketing to bring in that’s reasonable for the budget allotted.
3. I Pay for Marketing & My Sales Have Gone Up (or Stagnated), But How Do I Know What is Driven By Marketing?
This is one of the most difficult things we face as an agency because marketing works with your business and is not separate. For example, seldom do clients convert off of one digital ad on Facebook or one LinkedIn post. Most marketing is designed to keep your brand top of mind so that when a customer needs your services, you are the first person they think of. There is a massive opportunity cost of not having consistent content online. If your brand is not engaging with your customer base frequently, and someone else is, the chances of them still using your services when the opportunity arises are slim. It takes 7-10 impressions for your brand to be remembered by the consumer and an additional 10-12 for them to think of you when they need your services. Brand awareness is the lifeblood of the future success of your business, but on the balance sheet, its hard to attribute to marketing.
It’s also important to note that even for community circles where you are well-known and established, having a modern digital presence is still very important and helpful. For example, we work with a business that’s been operating for over 75 years. They work in a very niche industry with a very small buying pool. We started working together within the last year, and the biggest benefit they’ve realized from marketing is that clients no longer try to negotiate their fees. Their online digital presence positions them as a market leader, which has increased their perceived value in the minds of new clients and existing clients. Not negotiating on fees is not necessarily new business (although new business is also coming in), but it also contributes to a larger gross revenue figure at year-end.
4. Why is it Hard for Marketing to Take Credit for New Business?
Most business is generated because of consistent brand awareness. If I ask you where is the best place to buy a mattress is, most will instantly think of Sleep Country and The Brick.
Why? Because you have consciously and unconsciously absorbed hundreds of brand messages from these two companies telling you to buy your mattress from them. A lot of the business you will generate comes from the brand awareness that marketing creates, but if you ask your client, ‘How did you hear about us,’ they probably won’t say ‘Google AdWords’ or ‘Linked In’ because all of these marketing efforts are operating in their subconscious and when they consciously think about hiring someone for your services they will click on your name or research for you while in the buying process.
5. Stop Counting the Vanity Metrics
Many clients fail to measure ROI correctly because they only count the ‘clicks.’ The major social platforms give you a ‘click’ metric for your socials to web traffic. Most business owners use this metric as the benchmark for whether their marketing agency is generating a strong ROI. This thinking is flawed.
I had a client tell me that they thought only 3 sales came from social and digital marketing in the last year. I was shocked. When I asked how they calculated that number, they told me that it was the number of clicks to their “contact us” page that resulted in selling their services.
What they failed to factor into their ROI was the number of people who decided to work with them after verifying their work through social media or their website, the people that those 3 clients referred to them, and the people who read their blog and called them the next day, not through their website.
They also forgot to factor in how their branding made them a recognized thought leader in their community and has attracted top talent to work with them, growing their business from 5 employees to 9 in the last year.
Marketing works with your business, not separate from it. There is a massive opportunity cost by not investing in marketing because you cannot quantify or realize the business loss by not investing in marketing. It’s a necessary evil if you want to take your business to the next level.
Unfortunately, tracking ROI on your digital marketing efforts isn’t black and white. It’s not just about pulling clicks and conversion numbers. Those metrics matter and should be part of guiding your ongoing strategy, but they are not everything, and they are not the only measure of success.
Not all marketing is created equal, so assess your options carefully before starting and educate yourself on the metrics and tactics so you can ask informed questions. Lean into the power of strategic marketing; you will see results. Let go of black-and-white ROI figures, your bottom line will grow, and it will be tied to marketing. Strategic marketing that connects with humans works.