How many times have you heard someone say that a product “practically sells itself?” The truth is, nothing does, which is why many companies spend so heavily on their marketing. According to Ad Age’s review of the top U.S. advertisers in 2014, Proctor & Gamble spent $4.6 billion promoting things which we supposedly need every day, from detergent to razors. Marketing is a necessity that is central to any company’s growth strategy.
Small businesses, of course, don’t have billion-dollar marketing budgets. But whether your annual marketing budget is, $1,000 or $10,000, your spending will go further if you have a plan.
Many small companies struggle to figure out how much money they should set aside for marketing. The August 2015 CMO survey found that businesses spend, on average, 11 percent of their total budget on advertising. Business-to-business (B2B) companies have the smallest spend share, at 10.1 percent, while business-to-consumer (B2C) companies have the greatest, 17.5 percent. But small companies often don’t think in budget terms, so here’s another reference point: The same survey found marketing spending as a percentage of company revenues is now about 6.6 percent.
That doesn’t tell you everything you need to know. A start-up company is going to have to spend more to get attention for its self and its products than a well-known brand. One small business guru I know recently said that start-ups should spend 20 percent of their expected first-year revenue on marketing.
Once you make a commitment to how much money you will spend, you need to plan where to spend it. Business cards should be the first marketing purchase for any small business owner, but after that, the choices are dizzying. To decide among them, follow two rules of thumb: Market where your target customers are, and market in proportion to the leads you hope to generate.
If your target customers are online all the time, you should probably plan a marketing budget which favors online advertising over print. If they are driving all day, a billboard might be a better choice. If you can’t spend a lot of time analyzing your target demographics, look to see what your established competitors are doing. If they are using post-card mailers, you might want to do that too. But the days of having to buy a big, outdated mailing list are over: The U.S. Postal Service has a product called Every Door Direct Mail which lets you send mailings to specific zip codes and even specific mail routes in those zip codes. If you only want to target people who are in walking distance to your restaurant, you can do that.
Now, a word about goal setting: Setting a goal and working backwards to achieve it is a great way to determine a budget. For instance, let’s say you know that for every 50 new business leads only five become customers. If your goal is to get 10 new customers, you’ll need 100 business leads. Look at your planned marketing initiatives and see if they will make the sales funnel wide enough to accomplish that goal.
So why haven’t I written anything yet about free marketing, like social media and good-old-fashioned word of mouth? They should be part of your marketing plan, but they are not going to be sufficient and, increasingly, they are not free. Facebook has made it apparent that it wants to turn more of the small businesses who use it into advertisers on their platform.
Once your marketing plan is set, you’ve got one more thing to do, which is to check to see if you are spending effectively. If you ran an online ad, ask how many people saw it and how many people clicked on it. If you go with printed material, think about how you can track its usage. One BBQ place I know makes sure that every post card it sends bears the words “Bring this for a free dessert with your meal”. The owner counts every card her customers turn in and compares it to the number of pieces sent out to see if she received a positive return on her investment.
Author: Stephen Sheinbaum
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As Founder of Bizfi I oversee all facets of day to day operations and chart the course for future growth.In 2005, we created Bizfi, formerly known as Merchant Cash and Capital: a business founded on integrity and transparency – from the inside out.