We've all recieved both good and bad advice in our lives. The social media website, Reddit, has a lively page of bad advice. Take, for example, this guy who just wanted to know what to do with his incredible find:
Responses:
- I would recommend getting a second grenade and using the explosion from it to try and dislodge that pesky pin. Safety first.
- Warm it up first in the microwave. Give it 20 minutes. Then hammer it open.
We can only shudder to think what advice this grenade-owner took. Unfortunately, not everyone in this world intends to help you out.
At United WebWorks, our priority is helping you out. Don't worry - our goal is to bring you marketing advice that is tested, approved and practical. Unlike the Reddit users, we only give out advice that won't blow up in people's faces.
One old business axiom that is commonly given as advice states that 10% of your budget should find its way to the marketing department. This week's blog takes a look at that advice.
Typically, when deciding what business advice works and what doesn't, it's helpful to look at businesses who have used different methods. In this way, you can examine each, and try to determine what works best for you. Lawyers depend on this idea of "precedent" all the time: using a past decision to inform a present point of action. What precedents have other companies set in the recent past? How much did they spend on marketing and what results did they see?
In a 2014 Gartner Research study, indications look promising. The ten percent figure is close to the overall average of what companies actually put toward their marketing efforts. About half of those surveyed companies said they planned to increase that amount in 2015.
Reading this information, you probably have a few questions. These may include:
- "My business is not average, if the study includes giant multi-nationals and tiny corner grocery stores. Is there a way to get closer to my company's size / sector / life stage / goals?"
- "What exactly did that 10% do for the companies that spent it?"
- "What's a reasonable expectation for ROI if I decide to divert that amount of revenue to marketing?"
- "What are companies actually spending their budgets on?"
Good questions! While the 10% figure is instructive and gives us a rather large ballpark in which to start, what you really need is someone who can help you synthesize an appropriate marketing plan. This marketing plan should take into account the 10% precedent AND all the unique variables that characterize YOUR company. Your ROI mileage may vary extremely from other businesses of the same size and type. Choosing where your budget is spent is not as easy as simply doing what everyone else does.
Now that we've made your marketing budget even more complicated (sorry), let us now turn to some ideas on how to get things back to being simple and effective.
First, let's break down that intimidating, all-encompassing precedent into smaller parts. From a 2014 CMO study :
As you can tell from the chart, smaller-revenue companies spend more than the bigger ones. The reasons for this are somewhat intuitive: most smaller companies are in a growth stage and must expand to survive, resulting in more expenditure on getting their message out to potential customers. A good many of these new customers may already be customers of competitors, which means that prying them away requires a bit more expense.
Also, in terms of raw dollars spent, the big boys have the advantage. A ten million dollar company spending 10% of their revenue on marketing is laying out $1,000,000. A billion dollar company spending 5% of revenue is still able to deploy $50 million.
So, what's your annual revenue? Start with the 10% figure and adjust it to fit your needs. In no way does this adjustment have to conform to the "average."
Salesforce, the sales and marketing management giant with $4.1 billion in revenue for 2014, spent 53% that year. What they got was tremendous growth: 33% over the previous year.
Other companies' successes also support the theory that 10% is NOT the magic number when it comes to your marketing budget:
- Twitter's marketing budget, at 44%, netted 111% growth
- LinkedIn had a marketing budget of 35%, and grew 45%.
Instead of listing more, here's a chart to summarize:
http://research.chiefexecutive.net/portfolio/electronics/
One thing you'll notice is that none of the indicators are at exactly 10%.
What do you get when you spend on marketing?
You're looking to reduce risk on your investment. You want someone to tell you that putting your hard-earned revenue toward your marketing budget will guarantee growth. The short answer is that it usually does result in growth, however, the actual ROI depends on HOW you spend your money more than HOW MUCH money you spend.
Which stage are you in? There are many ways to characterize the lifecycles of businesses, but it does matter when thinking about your marketing budget. The "Existence" stage is a far cry from the "Resource Maturity" stage. From a Harvard Business Review article on Small Business Growth:
Wise Marketing is a direct result of testing. There is risk involved, but the only way to determine the right blend of strategies and costs is to try them out and carefully track your ROI.
Let's answer questions two and three by addressing the fear inherent in a decision to be more intentional about your marketing budget. Setting a budget for marketing doesn't have to be as rigid as you might think. Will the investment be wasted? Maybe, but you'll still gain some valuable lessons from it IF you pay close attention to what's happening.
Digital marketing is a godsend because it is so measurable. Your competitors are investing in digital marketing, there's no question about that. This means there's no real advantage to be gained simply by spending more. The edge comes from a deep understanding about how online marketing works, how and when it changes, and being ultra-intentional about measuring what works and what doesn't.
Part of what we do here at United WebWorks is to help your business by providing you with our digital marketing know-how, applying it to your unique current reality, needs, future plans, goals and risk capacity. This goes way beyond designing a bang-up website for you! We know that what you really want is leads, growth, revenue and success!
The truth is that you are already paying to play. You have a marketing budget but are you using it well? Is it the correct amount you need to assault those goals you have?
How much do you spend right now to acquire a new client or customer? Could that be different? More efficient?
Here's one way to calculate it, but be warned, you'll have to first dig out quite a few specific numbers from your operating accounts. Then you'll have to do a bit of math to discover what's currently going on.
First, find out your LTV- Lifetime Value of a customer. aka CLV (Customer Lifetime Value). This is simply the gross income you get from an individual customer.
Second- and this is somewhat more difficult to determine- the cost of customer acquisition, or CAC.
Knowing the ratio between these two numbers gives you a helpful data point describing the health of your company. Less than 1:1, and you're headed for the Failed Business Graveyard. 3:1 indicates blue skies and clear sailing.
Have a look at this article on calculating Cost of Acquiring Customers for more - there's an easy, less accurate method and a much more precise-but-difficult method for finding your numbers.
What are businesses like you actually spending their marketing budgets on?
There's a long list, but increasingly it digital in nature. Here's a sampling of what we do for our clients:
| DESIGN
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MARKETING | DEVELOPMENT
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Better yet, visit our Optimized, Mobile Friendly, high quality website to find out more! Marketing is all about Visibility, and we can help you with that.
Are You Ready?
Photo- XZaragoza - Flickr, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=1425932