Your business has grown, but you still want to know,
“How much should I spend on marketing? ”
Below we help answer the most frequently asked questions about investing in advertising and marketing.
HOW MUCH SHOULD I SPEND ON MARKETING?PERCENT OF SALES METHOD
The percent of sales method allocates a fixed percentage (say three percent) of the anticipated sales revenue to advertising and marketing. It is based on the erroneous assumption that sales cause advertising. The reality is just the opposite. Advertising and marketing produce sales.
Here’s the problem. No two businesses are alike. Not even in the same industry. There are too many outlying factors that can give you flawed data. And if your sales decline, marketing is cut. When you cut marketing, sales can decline. Eventually, you spend nothing on marketing, and theoretically, you have no sales.
For companies developing a marketing budget for the first time, industry averages for percent of sales invested in marketing can give you a starting point. Trade associations are also a good source for determining industry averages. But don’t let this be an absolute. It’s only a benchmark.
The percent of sales method is an excellent way to track marketing expenses year-over-year or period-over-period. Nothing more.
HOW MUCH IS TOO MUCH TO SPEND ON MARKETING?SALES VS. MARKETING GROWTH RATE
When marketing investment grows faster than total sales, you may be spending too much on marketing. At minimum, monitor your costs closely to see if the trend is short-term and justified or indicates a bigger problem.
This simple calculation is the most important one you perform any period or year. Compare your sales growth rate against your marketing growth rate. Sales should grow at the same rate or faster than your marketing investment. This is your line in the sand and should never be ignored.
Be careful not to compare periods that are too short to accommodate trends. If your seasonal business or long sales cycle creates peaks and valleys, yet your marketing expense is spread evenly over the years, this comparison won’t be accurate in a given month, but it has long-term value.
Every business, regardless of size or industry, will benefit from tracking and monitoring sales growth vs. marketing investment growth.
SHOULD I INVEST IN SALES OR MARKETING?DIFFERENTIATING SALES VS. MARKETING
Sales and marketing are not the same. The two are mutually dependent. However, for a mature business, marketing drives interest, awareness and prospects. Sales sells. One needs the other.
Too often, there is an overlap that results in a bad investment and bad outcomes. Good sales people are best used to qualify prospects, communicate one-on-one, sell features and benefits and overcome objections. If a good sales person is cold-calling, you could be overspending.
A new sales person for a Midwest industrial B2B company can easily cost $100,000 before travel and benefits. Plus, it may be months before you see the fruits of his or her labor. A complete $50,000 lead-generating marketing program for the same B2B company will build an ongoing pipeline of prospects, as well as brand awareness that benefits the entire sales team.
Feed the beast and the beast becomes a finely tuned sales team that closes sales. Let marketing create brand awareness and generate leads. Then if a sales person leaves, you don’t lose ground.
WHERE SHOULD I SPEND MY MARKETING DOLLARS?ALLOCATION OF MARKETING INVESTMENT
Too many options and not enough choice. Consumers today expect and get choice when making purchasing decisions. Online, off line, print, mail, digital, websites, social media, reviews, sales people, call centers, traditional advertising... and on and on. B2B and B2C buyers have choices, yet there are business owners who don’t give their prospects enough choice.
Today marketing is broad and holistic, crossing into and out of many channels – all of which need your attention.
Since 2003, EAG has studied more than 300 businesses and accumulated data regarding the distribution of marketing investments. A recent study of our clients revealed the average allocation of investment in marketing (excluding sales staff).
WHAT SHOULD I EXPECT AS A RETURN FOR MY INVESTMENT?LIFETIME VALUE OF A CUSTOMER
What is the lifetime value of a customer? This is a number every business leader must know. It is determined by multiplying your average customer’s sales (or income) by the average number of years you retain a customer. Remember, customer retention is more important than new customer acquisition because it is cheaper to keep a customer than to find a new one.
With the lifetime value of a customer in hand, create your sales pipeline and answer the question: How many new customers do you need to pay for your investment in marketing, overhead and profit?
Businesses don’t ‘buy’ marketing and hope for a return on investment. Marketing investment is a calculated science, but not absolute. Sometimes there is a direct correlation between the investment and acquiring new customers. Sometimes that correlation is more difficult to measure.
The sum of all marketing investments should result in greater customer retention and business growth over time. Of course, making the right investment helps speed along the process.
SHOULD I OUTSOURCE MARKETING OR HIRE STAFF?CALCULATING OUTSOURCED SERVICES
Growing companies must expand their marketing capabilities, but can’t add marketing talent at an equal pace. Outsourcing enables companies to add incremental support in small, manageable steps so that marketing expenses don’t rise faster than sales.
Consider all the skills you may need for a marketing department:
- Strategic marketing leadership
- Marketing administration and management
- Website design, development and marketing
- Search marketing and digital advertising
- Media buying and social media knowledge
- Copywriting and design skills
Broad marketing experience is seldom found in the same individual. Some skills are talents while others are learned. To go from zero marketing to a fully capable in-house staff can mean immediately adding five or more employees to the payroll. Few business owners want to do that.
Some marketing responsibilities are best served by an in-house staff because of the proximity to the leadership and sales team. These include:
- Sales administration, including CRM support
- Sales support for RFPs, pricing and presentations
- Technical writing and content development
- Website updating when using a CMS
Marketing outsourcing can fill important gaps in a company’s growing marketing department while delaying the addition of staff and payroll.
Want to know which half of your investment in marketing is working?
We can help.