Ep. 6 Developing A Marketing Budget

Brad Post, Create the Movement: You’re joining us for our next edition of Create the Movement podcast. My name is Brad Post. And I’m here with Josh Rich.

Josh Rich, Create the Movement: Hello everyone. Hello.

B: Josh, how are you doing?

J: Doing good, Brad. How are you?

B: I’m doing well. This is our Marketing Tips, and today we’re going to be talking about marketing budgets for small businesses. Right?

J: Yeah, so one of the things we kind of run into a lot when we talk with a new client, we ask them, “What’s your budget?” And we always, not always, but a lot of the times we get the response, “We don’t have one.”

B: Right.

J: Or, “What do you suggest?” Or, “We don’t really have a defined budget.” So, since the new year is kind of approaching, we thought it would be a good idea to kind of to give some tips on how to create a marketing budget. Because it is important to know how much you’re willing to spend, and how much you should be spending on your budget for marketing.

B: Yeah.

J: So, the first step that you really want to make sure, just whenever you’re focusing on this, is to be defined.

B: Be defined?

J: Be defined. Yeah. Don’t have some sort of vague number. Write it down. Make it a part of your company’s budget every year, or every month. However, you want to it. So, that way you know how much you can spend, and how much you should be spending. There’s kind of five questions you should ask yourself when you’re trying to set this.

B: Okay.

J: The first one is what do you need?

B: What do you need?

J: What do you need? So, that’s going to depend a lot on your industry, a lot on your company. So, do you need leads? Do you need sales? Do you need just brand exposure? Do you need traffic to your website? So, sit down and think about what you need. Because like I said, it’s really going to influence how much you’re going to spend, and where you’re going to spend it too.

B: Most of the time they might say, “All of the above.”

J: Right. Exactly. Like I said – be defined. You have to pick one. And your need will most likely change over the course of a year or so. When you’re starting out on setting that budget - be defined and pick one.

B: Okay.

J: The second one is figure out what you’re currently paying.

B: Okay.

J: For some people this could be zero. But for some people, they might just kind of, if they’ve never really thought about it, they might just spend a $1000 here, a $1000 there, and not really know where it’s going, or what it’s doing, or how to track it, or that kind of stuff. Just whenever they get an email, or some salesman calls them, they’ll sign up for it, but they’re not really keeping track of it. Not really sticking to any sort of set plan.

B: Right.

J: And so, go back and see what you did last year. Figure that out. Because that will kind of give you a good starting point. Once you have that number, you want to try to assess how that worked out for you. So, figure out your cost per lead, your cost per sale, or whatever metric you want to use. Find a way to evaluate how well it worked.

B:  Okay.

J: And then figure out if that’s something you’re comfortable with, or not. So then, the next step is to think about how fast you want to grow. Because a lot of us, I mean, as much as we would love to have 10 clients call us a day, and say, “Hey, we want new websites, and the most expensive SEO package.”

B: Right.

J: We’d be in trouble if that happened.

B: Yes!

J: We’d simply cannot scale that fast. You know? And so, try to figure that out. And if you can scale that fast, and you want to, then be really aggressive in your marketing budget. If you can’t afford to scale very fast, it’s going to be slow growth, then you need to back off, and make it more of a less aggressive approach.

B: Okay. Good.

J: You also want to figure out too, like, kind of going back to that second question, once you figure out your previous year’s cost per lead or cost per whatever, try to figure out what your ideal cost per lead is. Figure out what you’re comfortable with. Then, what you can do that is you can build that into your cost. So, if you sell widgets, and you profit five dollars per widget, a dollar of that, hopefully you know, is going to go to your rent. A dollar of that is going to go to payroll. So, figure out like how much of that profit margin you are willing to allocate to your marketing budget.

B: Okay.

J: And then make sure that cost is built into your profit margins.

B: I like it.

J: I guess we’re on the fourth one now, it’s going to be risk. So, know how much risk you’re willing to take.

B: Okay.

J: Because anytime you spend money on marketing, you’re taking a risk. Even with us, we’ll tell you, “We can make no guarantees, really. We’re not going to guarantee that you’re going to be on the first page.”

B: And if anyone does you need to run from that SEO company.

J: Exactly. Yeah. Or, even if you do traditional media, all they can really tell you then is how many people are probably going to see it.

B: Right.

J: But they don’t know how many people are going to buy it. You know? So, you have to be prepared to take a risk.

B: It reminds me of a scene in Mad Men. I think Donald Draper had just closed a deal, and they were walking out of the office, and they were like, “We’re excited about what you’re going to do for us.” And he was like, “Well, this isn’t science. So, it’s kind of all luck.” And they were kind of like, “What?” Marketing is not a science.

J: No. It’s not at all. It’s absolutely a risk. So, know how much risk you’re willing to take. And know how much you’re willing to lose, too. Like how much are you willing to put up? In the first phase, especially if you’ve done any marketing before, there’s going to be tweaking. So, figure out how long you’re willing to do that for. Play the long game, too. We see this a lot of times. That people will try things for like a month, and it doesn’t work, so they move on to the next one. I would definitely recommend sticking it out for at least three months. That will give you a really good gauge to figure out if it works or not. So, with that said, I would probably recommend if you can’t afford a service for three months, then don’t do it.

B: Yeah.

J: Because you’re not going to figure out if it works or not.

B: Yeah. A lot of times with SEO campaigns, too, people want to say, “How quickly can we see results?” With SEO it takes time.

J: It takes a lot of time.

B: Yeah. It’s dependent on a ton of factors.

J: A lot of it you really can’t see.

B: Right.

J: It depends on where you start from, and what you’re trying to do. Competition. So, yeah, risk is a big deal. The next one, and probably the last one you want to consider, is try to find out what your competition is doing. So, at the very least, you can keep up with the Joneses.

B: Yup.

J: If you see them on a ton of the pay-per-click ads, or a ton of radio spots, or what not, if they’re doing all of that, and they seem to have better luck that you are, then you should try it.

B: Yeah.

J: You know? Try to figure out, get a rough ballpark, on based upon what you see they’re spending. So, if you take those five things into consideration I think that will give you a good starting point. There are a couple of mathematical formulas I found when I was browsing that might help you as well. And so, we’ll go through those right now. The first one is called a percentage of sales.

B: Okay.

J: So, what you want to do is you figure out your last year’s sales numbers.

B: Okay.

J: And then you take 10% and 2% of that (last year’s). You can do this with last year’s sales, or with project sales for this year. Either way kind of works. So, you take 10% and 12%, and then you multiply each of those by your gross markup. And then, you subtract your rent and any other sort of things.

B: Expenses?

J: Yeah, expenses. And then that number, you should have two numbers, that should be your marketing budget. That range.

B: Okay. So, say that again. 10% of gross sales

J: You get 10% and 12% of last year’s sales, or projected sales for this year, then you multiply each by your gross markup, and you subtract expenses, and then that’s your number. That’s your range.

B: Okay.

J: So, you can try that. See how it works for you. Or, there’s kind of rules of thumb. That you can use too if you’re a startup company. You’re going to need to be more aggressive since you’re a new company. So, typically they will recommend that for the first two years you’re in business, that 20-30% of your budget should be devoted to marketing.

B: Okay.

J: Whereas, if you’re more like a well-established company, you can kind of get away with 7-10%. I came across those. Or, there’s some other rules of thumb that say basically it should be between 1-10%, and the newer you are, the more it should be. The older and more established you are, the less it should be.

B: Okay.

J: So, just kind of play that range. Like you said, “Marketing is not a science.” Making a budget isn’t really a science either. A lot of it depends on your industry. A lot of it depends on how competitive your “fishbowl” is.

B: Yeah, that’s good stuff.

J: One thing that I wanted to say with, you know, just making sure that you’re training your people when you get new sales, people come into your store, people call your location, is in the potential client intake, “How did you hear about us?”

J: Yeah, that’s huge.

B: That’s extremely important because that helps you to look at, “Okay, this Yellow Page ad is not getting me any results. Where the internet is.” Or, vice versa. And of course, sometimes, me being the president of the company, there like, “We found you online.” I’m like, “Well, how did you find us online?”

J: That’s a pretty broad category.

B: “Did you Google us?” You know? “What keyword did you use?” And you don’t want to drill down too hard, because then they’ll be like, “Well, forget it.” You know? But just asking in the client intake, “Hey, how did you hear about us?” And that will help realize what is effective and what’s not

J: And it’s a good point, too. I think that just anytime you spend any money on marketing you want to make sure you have some way of tracking it.

B: Right.

J: And some ways are going to be easier than others. Like TV ads are pretty hard to track.

B: Right.

J: But make sure you have some way, some analytics in place to gauge how effective it is.

B: Absolutely. Awesome! Anything else, Josh?

J: I think that’ll do it.

B: Join us for our next edition of Create the Movement podcast.