How much should I spend on marketing - initial steps.

Marketing for me, is a key driver for growing a business and increasing profitability. There are, of course, other important business drivers that determine the success of a business however the performance of a business's marketing section touches on them all and impacts across all business units.

I see far too many companies not spend enough time developing a marketing strategy and come up with a well-defined plan to ensure they don't under spend on their customer facing efforts or alternatively overspend reacting to the latest “marketing” idea targeting an audience that doesn’t match their customer demographic.

I have used and shared widely a very basic process (be brilliant at the basics!) as a starting point to determine how much should be spent on marketing and gain insights to utilising the funds wisely and effectively.

1.      Map the Revenue Path

Dive into your customer base and sales funnel. This allows you to establish the path for revenue from lead to prospect to customer to repeat customer to recommender. A CRM or marketing automation platform will hold this information (or may be a good investment).

An example Revenue Path would look like: # Site Visits per month à # subscriptions/enquiries generated per month à # of these converting to sales qualified leads per month à the cost of generating these SQLs (web development, content creation, adwords, time spent by marketing/BD/sales to nurture leads) à # SQL’s convert into proposals à# Proposals close as new deals à Typical revenue of a new deal

This gives you several insights… you can gain a customer lifetime value, work out which platforms work most efficiently (and what areas to invest in more or less), gives you an ability to assess return on investment, allows you to start a demographic and behavioural profile for the prospects/customers that give you the best result.

2.      Find Where the Costs Hide

There needs to be a balance in chasing revenue. For me it comes at the point where the investment gains the highest effective rate of return. There should be a measurable return, 2 times spend, 3 times spend, etc and at a certain point an increase in spend doesn’t gain any significant increase this is the point to strive for.

Many of the costs are easy to determine however you want to look under every rock and have an understanding for where all the contribution costs are, including opportunity costs. This gives you a starting point to determine real return on investment. Think about the cost to deliver contacts (time and labour), cost of internal staff engaging in the marketing (if they have the bandwidth/what is the opportunity cost), cost of additional headcount along with related employee benefit costs, cost if hiring an agency (upfront costs may be higher but results may justify additional expense) even the potential cost of inaction.

3.      Treat Marketing Like an Investment Not a Cost

It’s common for businesses with revenues less than $10 million dollars to allocate 7-8% of their revenues to marketing, those with over $10 million in revenue 10-11%. The split between brand development costs such as websites, content, publications, blogs, sales collateral, and promotion costs, as well as business development & retention campaigns, advertising and events. I have seen a couple of businesses make the mistake of basing their marketing budget on what’s left over after covering all the other expenses, this almost always ends in a very low return on investment. This occurs in organizations where marketing teams are considered purely as cost centres and the marketing budget is perceived to be an expense. It then takes last year’s marketing budget and then decides about if they want to spend more or less. My argument to this is that the marketing spend should bring a quantifiable and ascertainable return on investment tied directly to the business goals.

4.      Tie Marketing to Business KPI’s

By linking marketing to the business’s KPI’s you can easily align your communications both internally and externally. The investment return is also made more transparent, for example, you determine how many contacts need to be delivered to your sales teams, based on their close rates, to impact revenue enough to achieve the planned business objectives. Marketing plans should address short term and long-term Business KPI’s and align the targeted marketing outcomes as well as the intended rate of investment return for each.

These 4 things give a strong foundation for a very effective and well-defined marketing strategy and plan that builds integration across teams, builds more alignment with customers, drives profitability and investment return at the same time as highlighting any wasted spend, reducing any inefficiency. From this you can find a clear path to the marketing investment required to reach your business goals.