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How much do you spend on marketing? Is your business like Papa Bear, not spending enough? Is it like Mama Bear, spending too much? Or is it like Baby Bear, spending just the right amount?
Most people don’t know.
Figuring it out can help you in so many ways. What marketing expenses can you cut? What should you devote more money and time to? What can you improve? What can you stop doing?
What you spend on marketing is based on your revenue
The standard advice is to spend 2 – 5% of your annual revenue on marketing each year. I’ll let you calculate that amount right now.
But how much are you actually spending? Look at your P&L statement from last year – marketing expenses should be a line item. If you do a lot of your own marketing, calculate how much time you spend on it and multiple that by your hourly rate. Add it to your marketing spend.
Is that final number aligned with the 2 – 5% guideline?
If it’s more than that – or less than that – don’t panic thinking you are doing this all wrong. Results are really more important.
(True story: I once had a company ask me how much social media marketing support they could get for $100 per month. That’s right … $100. I believe my reply was something like this, “Nothing. You can get nothing.”)
Consider your marketing ROI
Now, I know it’s hard to look at your email newsletter, LinkedIn posts, event sponsorship, or a single blog post and say, “This one thing generated A LOT of new clients!”
All your marketing efforts work together to build trust and keep you top of mind. The hope that is when someone is ready to buy what you sell, they will buy from you (and hopefully become a lucrative, long-term client).
Instead, look at your marketing spend from last year versus revenue from new clients. Hopefully, marketing paid for itself many times over.
What marketing channels are not working?
I realize I just said it’s hard to tell which channel or piece of marketing is converting people.
However, it’s very obvious when a channel is NOT working. If you have been using a channel for at least one year and it’s getting little to no engagement, there’s a problem.
Either your ideal client isn’t on/using that channel, or you need to improve your strategy, content, and/or topics. How do you know which it is?
Well, if the content/topics are performing great on other channels, it means your ideal client isn’t using this one channel.
And if you know your clients do use that channel, then the strategy, content, and/or topics are the problem. (A good marketer can help you sort through it.)
Where are you in your business growth?
A new business – less than two years old – needs to invest more in marketing to raise brand awareness, acquire clients, and get traction. You might want to increase your marketing spend to 10% or more of your revenue.
Do a lot of research before you start throwing money at marketing to make sure you are on the channels your clients use. Messaging also has to be on-point or you will not connect with your ideal clients’ needs.
For very established companies, you might be tempted to take your foot off the gas and invest less in marketing. But that opens the door for competitors to steal market share. It also leaves you exposed if, say, half of your revenue comes from contracts with the Federal government and suddenly their budgets and grants get slashed.
Just as you don’t stop learning until you’re dead, don’t stop marketing until you retire and sell your business.
Also, don’t forget about the time factor involved in marketing. When I started out, I invested a lot of time on in-person networking. It wasn’t expensive per se, but it was hours of conversations – some completely useless, some productive – each week. Time is money.
What are your sales goals?
If you want to double revenue this year, you will need to spend more money to reach more people … to make more money. The same idea applies when you’re launching a new product or service line. Of course, this also involves scaling your operations to meet more demand, so you could be facing a large investment to reap the rewards.
Maybe you want to grow at a more sustainable clip you can manage – like 25% or 30% in year over year revenue growth. This is when you want to double down on the channels that are working for you. Or you could try new ones you haven’t pursued yet, like looking for opportunities to be a guest on established podcasts.
The big question: Is your marketing spend delivering results?
Related: Social Media Marketing: Essential Strategy or Total Waste of Time?