Accessible Marketing

How much does a small business need to spend on marketing?

by Judith Hutchinson

How much does a small business need to spend on marketing

Small business owners often ask me how much they should be budgeting for their marketing activities.  I find it’s easiest to answer if you know three main things:

Here’s a breakdown on how you can answer each of these….

What do you want to achieve?

A business wanting to launch a new product to a new market and increase overall turnover by 50% will have a different marketing spend to a business wanting to build its turnover by 10% and improve its profit margins.    When you think about what you want to achieve this enables you to put your marketing spend into context.  It also enables you to start to see the ‘spend’ as an investment i.e. something you get a return on, which leads nicely into….

What are you already doing that is creating a return?

I would also look at your current marketing activities.  What are you already doing that is creating a return?

I once worked with a client who was advertising in the trade press but wasn’t measuring what return the ads were generating.  We put steps in place to measure the ads and we ended up cutting their ad spend by £60k per anum whilst still generating the same results!

I also think this is the downside of seeing marketing as a ‘spend’ or a ‘cost’ rather than an investment.  When you invest your money in stocks and shares – yes they can go up and down in value but in general, you would monitor them and if they weren’t moving in the upward direction you would do something about it – right?   So why wouldn’t you do something about what you are investing in your marketing activities rather than just thinking that if you throw money at it, it will automatically have an effect?  Usually, the effect of marketing is about generating new customers which takes us nicely to the next question…

How much is a customer worth?

People can often overcomplicate the answer to this question.  There is an easy way to think about it

Think about your average customer – what do they buy from you, how often do they buy and how long are they a customer for?  Just go with averages (it doesn’t have to be an exact science).

Let me give you 2 examples:

A coffee shop’s average customer buys 2 cups of coffee every week and they tend to be a customer for 3 years.  If your coffee costs £2.50 per cup then you know that this customer has a lifetime worth of £780

A B2B example could be an accountancy practice who charges its clients £2500 per anum in fees and the average client stays with them for 5 years hence the customer is worth £12,500 to the business

If you know how much a new customer is worth to your business over their lifetime this again can put your marketing spend (or rather, investment) into context.  If a new customer is worth £50 you aren’t going to spend £500 attracting them but if they are worth £15k you can justify splashing out a little more (if you need to).

A side note – Is it a spend? Or an Investment?

It does grate on me slightly when people refer to their ‘marketing spend’ and whilst I understand they are spending I think it would be more helpful if we twisted our thinking a little and see marketing spend as a business investment.      Again, if you invest your money you do your research, you plan, you know there are risks but you can be calculated and ensure you are not leaving too much to chance.

If you didn’t spend money on marketing would your business still exist?  Is your marketing spend an investment?   If it isn’t how can you make sure it is an investment?

In summary

In summary, to know how much you should be looking at spending on marketing you need to

Once you have this information you can put your investment into a context which should help with your strategic marketing planning and decision making. Above all else, it’s about seeing marketing as something that is constantly evolving.  Something that needs to be monitored and adapted as the marketplace changes.  Often with clever marketing strategies, you don’t need to spend a fortune.

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