5 questions to ask yourself to create a marketing budget for your small business:
What are my business goals? Do I need more leads, more sales, or more brand awareness?
Your goals determine where your money should go. For example, if you need to generate leads this month and you start off with an SEO campaign, you’re probably headed down the wrong path. If you want to create long-term brand awareness and you start off with an aggressive Google Ad Words campaign without setting it up right, you might fail.
Once you identify your goals, you will be able to identify a budget. Let’s say you have a business that lends money to restaurants. You are looking to generate leads that close in 90 days and bring in loans of $5,000 each. That is a well-defined marketing goal!
What are you currently paying to play?
If you are running a business, you are currently paying some amount to acquire new clients or to get brand awareness. One way or another, this is part of your cost of doing business. If you have sales reps closing deals, for instance, the cost of their labor is set against those new sales. If you have a retail store that costs you $10,000 a month, you are spending at least three times what it would cost to be in an office in exchange for foot traffic.
So it makes a lot more sense to have a marketing budget—-actually you already have one, just one you might not be aware of.
How fast can I afford to grow?
Once you understand your goals and what you are currently paying, you can try to figure out how much you can spend on each lead or each sale. For example, let’s say you make $500 off each $5,000 loan and you acquire a restaurant that has taken out four loans over four years. This client is worth $2,000 of profit to your business.
How much of that profit are you willing to invest to get another client? If you say 25%, that means you can afford to pay $500 per sale.
Now that you know what you are willing to pay for a new client, how many clients like that can you afford to buy? If you can afford to buy ten new clients per month, then your marketing budget is at $5,000 per month.
Am I able to take the risk?
Marketing is about testing. Say that you decide to designate $5,000 for a marketing budget and that you can only spend that $5,000 if you get 10 new clients. There is no way for you to know if you will indeed get those ten clients unless you spend it—and risk not getting any additional clients. There is always a risk of not getting the Return-On-Investment you are looking for when you are marketing your business.
Some business owners get really excited and put it all on the line with a prayer and hope for the best. They know they can’t afford to take the risk, but they just do it anyway. They often end up going out of business. They blame their loss on luck or a bad market, when in reality they took on more risk than they should have.
How do I minimize my risk?
Let’s bring it all together by returning to the restaurant-loan company. Assuming that you made roughly $2,000 per client over four years, you were willing to invest $500 for each new client. You realize that you are actually paying $400 for each new client brought in through your sales reps, but that growth isn’t scalable. You look at your bank account and find that you have $25,000 that you can spend, but you are not willing to blow that all at once. You need to be sure that you can handle the influx of additional business, so you are willing to take on ten new clients per month. You are willing to risk $5,000 per month in hopes of getting ten new clients.
You create a digital marketing strategy that you test out to minimize your risk—you watch the quality of the leads each week. You start the campaign at $200 a day and quickly realize that it costs you $100 per new lead—at $200 a day you are getting two leads a day. The problem is that at the end of the week, you have ten leads and only two of them are likely to close. At the end of the second week, the same thing happens, but you realize something interesting. Those four leads that are about to close have an average loan amount of $20,000 each. Your profit per account is fourfold, and you start thinking about doubling your budget.
Let’s pause. What happened? You started off with no budget and now you have some clarity and some hard numbers to use for future planning.
Now you can see why having a budget is so important. You have a place to start, but you are also able to test it and change the details and methods as needed.
If you would like to discuss doing this exercise for your business, feel free to schedule a phone meeting below.