I get this question all of the time:
How much money should I budget for my business marketing?
While it varies depending upon type of business and your business goals, a general rule of thumb is 20% of your revenue.
Some small businesses have a fairly steady income from month to month, and so it can be easier to extrapolate a monthly or annual marketing budget by simply calculating 20% of the income for the month or year.
Other businesses have larger ticket items that may sell less frequently, and an easy way many businesses work with this format is that upon a sale, they set aside 20% into an account for marketing purposes.
Whether you sell large-ticket or small-ticket items, you want to invest your 20% budget wisely to get the biggest return on your marketing costs.
Ideally, you know your customer acquisition cost – how much it costs you to gain one new customer. Depending upon what types of marketing you do, you may be able to calculate this very easily. If the only thing you do is one type of paid advertising (and no other marketing expenses), you can easily use that amount to determine the cost because there will be a direct correlation.
If you use multiple marketing methods, especially those that are not easy to track, you take the total amount you spend on marketing each year, divide by the total new customers you sold that year.
Amount spent, divided by new customers = customer acquisition cost
For example, if you spent $100 and gained 100 customers, your customer acquisition cost is $1.
$100 / 100 = $1
If you spend $10,000 on marketing in a year and gain 100 new customers, your customer acquisition cost is $100.
$10,000 / 100 = $100
Here’s how you can put this information into practice, using this example:
Let’s say you sell large-ticket items (automobiles, homes … etc). You don’t make a sale daily like some other businesses might and your monthly revenue may fluctuate, which could make it harder to determine a monthly marketing budget.
In your first month, you spent $200 out of pocket – let’s say before you’ve gained a single customer – on marketing. From this effort, you gain one new customer, so your customer acquisition cost is $200.
When you sell your first customer, your revenue from the sale is $5,000. You want to immediately take 20% of that – or $1,000 – and earmark it for marketing. (How many months you choose to stretch that $1,000 can vary and doesn’t directly impact our example.)
Since you know your customer acquisition cost is $200 per new client, that $1,000 should gain you FIVE new clients. This would (theoretically) result in $25,000 in new sales.
You would then take 20% of those sales – or $5,000 – and reinvest that in your marketing. Knowing that your customer acquisition cost is $200 per new client, you would expect 25 new clients which should generate $125,000 in new sales.
In this example, when done smartly, your initial $200 marketing investment could grow to $125,000.
Does my marketing budget always have to be 20%?
Absolutely not. If your business is in an aggressive growth mode, the amount of money you budget for marketing purposes may be 20%, 25% or even 30%.
If you’re just starting out in business, while this would be a time you would want to have that aggressive growth and therefore invest more, it may not be possible to pay all of your bills and still budget 20%. In that case, perhaps your business should only invest 10%.
How much money to budget for your marketing can depend upon a number of factors unique to your business. That is something we can always assist you with on a free strategy call – book your call now at http://vickywu.us/free-consultation.
If you don’t know the best methods to market your business to generate new paying customers, then you may find yourself having to invest more money in marketing to gain the same number of new customers you may have otherwise. Investing wisely and efficiently is always a best practice.
Having a solid marketing strategy based upon best business practices can make sure your return on investment is the best possible.
We can help you determine some best strategies for your business marketing. Book a free strategy session now at http://vickywu.us/free-consultation.