Small Business Marketing Budget
A smart marketing budget is the most important thing you can do for your business. So why are so many small businesses afraid of it?
A man with a very successful small business called me recently to say he was ready to take his business to the next level. I ask him what that meant; he replied that he wanted more. I kept probing, asking him what “more” was. He told me that I had asked good questions. Then he started describing his business. He explained that he wanted to get more customers who could spend more money with him, and that he wanted to do it profitably.
Now the conversation was starting to get productive, as we were talking about a well-defined goal. But it all came to a screeching halt when I said that devilish word: budget. Budget is a word most small business owners hate to hear. Even the executives of some midsize companies squirm when they hear, “What’s your budget?” »
How can a business operate without a marketing budget? There’s a mentality that if you have a budget you’ll end up wasting it because once you figure out how much money you’re going to spend, it’s like you’ve already spent it. But that couldn’t be further from the truth.
Creating a smart budget is the most important thing you can do for your business. That’s probably more important than knowing how to spend it, especially when it comes to marketing. One of the reasons I love digital marketing so much is that it’s highly measurable. You can measure exactly what part of your budget is working and what part isn’t, then adjust the numbers accordingly.
Here are five questions you should ask yourself before creating a marketing budget for your small business.
What are my needs? Do you need more leads, more sales, more awareness? Your goals will help you determine where your money should go. For example, if you need to generate leads this month and you’re starting with an SEO campaign, you’re probably on the wrong track. If you want to build long-term brand awareness and you start with an aggressive Google Ad Words campaign without setting it up properly, you may fail.
Once you’ve identified your needs, you’ll be closer to establishing a budget. Let’s say you have a business that lends money to restaurants. You’re looking for leads that close in 90 days or less and generate loans of $5,000 each. It is a well-defined need.
What are you currently paying to play? If you’re running a business, you’re currently paying to get customers or to build brand awareness. One way or another, it’s part of your cost of doing business. If you have sales reps closing deals, for example, their labor costs are compared to those new sales. If you have a storefront that costs you $10,000 a month, you may be spending three times what it would cost to be in an office hoping to get foot traffic.
When you understand what you’re currently spending on your marketing, it makes more sense to have a budget — in fact, you already have one, just one you’re not fully aware of.
How fast can I afford to grow? Once you understand your needs and what you’re currently paying, you can try to figure out how much you can spend on each lead or sale. For example, suppose you make $500 on every $5,000 loan and end up with a restaurant that took out four loans over two years. You realize that this client is earning you $2,000 in profit.
How much of that profit are you willing to give up to get the customer? If you say 25%, that means you can afford to pay $500. Now that you understand what you’re willing to pay for a customer, ask yourself how many customers like this can you afford to buy. If you can afford to buy ten new customers per month, your budget could be capped at $5,000 per month.
Am I capable of taking the risk? Marketing is about testing. Say you decide to allocate $5,000 to a marketing budget, and you can only spend that $5,000 if you get 10 new customers. You have no way of knowing if you will actually get those ten customers unless you spend them and risk not getting any additional customers. There is always a risk of not getting the return on investment you are looking for when marketing your business. Some business owners are 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 do it anyway. They often end up going bankrupt. They attribute their loss to luck or a bad market, when in reality they took more risk than they should have.
How can I minimize my risk? When you embark on your marketing journey, you know there will be many risks and you could fail. Asking yourself how to minimize your risks is very important, even before setting your budget. If you can leverage certain technologies to help you understand your risks and analyze your results, you can increase your budget significantly and maintain the ROI you need to fuel growth.
Let’s bring it all together by going back to the loan-to-restoration company. Assuming you were making about $2,000 per customer over two years, you were willing to give up $500 for each customer. You realize that you’re actually paying $400 for every new customer brought in by your reps, but that growth isn’t scalable. You look at your bank account and see that you have $25,000 to spend, but you’re not ready to spend it all at once. You need to be sure you can handle the influx of additional business, so you’re ready to accept ten new clients per month. You’re willing to risk $5,000 a month in hopes of getting ten new clients.
You create a digital marketing strategy that you test to minimize your risk – you monitor lead quality weekly. You start the campaign at $200 a day and quickly realize it’s costing you $100 per lead. At $200 a day, you get 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. These four prospects who are close to closing have an average loan amount of $20,000 each. Your profit per account is quadrupled and you start thinking about doubling your budget.
Let’s take a break. What happened? You started with no budget and now have some clarity and hard numbers to use for future planning.
Now you can see why having a budget is so important. You have a starting point, but you can also test it and modify the details and methods as needed.
If you would like to discuss performing this exercise for your business, please give me a call. In fact, I like to understand this.
And let me know what you think in the comments below.
BIO: Joe Apfelbaum is the CEO and co-founder of the digital marketing agency Ajax Union. He is a speaker, certified Google trainer, and published trade author. Joe enjoys speaking and writing on a wide range of business topics in his seminars, webinars and articles. Joe is a member of the board of directors of the Organization of contractors in NY, a group with more than 10,000 CEOs. Joe is a trusted advisor to the View community of 18,000 CEOs and an active member of the INC Business Owners Council, the fastest growing business community in the United States. Joe is proud of all his accomplishments, but most of all he is proud of his success greedy woman and four beautiful children.
