In this guest blog, Chartered Account and Tax Expert, Matthew Russell explores how to work out your optimum marketing spend.
Is it really worth my while to spend more on marketing?
This is a question that I get asked a lot by my clients, because most of us are aware that generating leads and selling is something all business owners have to do. Without selling you do not have a business.
The honest answer is not as simple as you might guess. The need for an additional marketing budget depends on many factors:
- It depends on what you are going to spend the money on and whether it will give you a good return on your investment?
- It depends on whether the marketing you are doing at the moment is working for you and if you even know whether it is working for you?
- It depends on whether you have the cash flow and ability to afford additional marketing outlay?
What to spend the marketing budget on?
There are so many different ways to market your business these days and it can seem like an impossible task to choose exactly what will work for you. This is where a professional marketing agency like Snap comes in handy. Their experience can mean that you choose the right marketing to suit your brand and your industry.
If you are an established business, you may be tempted to follow the tried and tested route of what has worked in the past. But never forget that your customers are always changing, growing and using different purchasing channels and you should aim to adapt your marketing to suit their changing requirements or risk being left behind.
Despite the temptation to stick to what you know, you shouldn’t be afraid to use some of your budget to test new marketing channels. Even if they don’t work, it is a valuable lesson for future choices and will give you information you can use to inform your marketing choices as your business develops.
Is your current marketing working for you?
Many businesses have no idea if their current marketing is working or not. I am astonished by the number of businesses I come across who still do not ask new clients how they found out about them. The first step to building up a picture of what is working and what is not is to find out how you are winning new customers. Surveys and questionnaires can be a great way of generating good data here.
You then need to develop some indicators and measures to use to help you calculate what is working the best. Don’t just rely on ‘gut feeling’ here, as the actual statistical and monetary results may surprise you. I remember thinking that networking was very expensive with large up front membership costs, until I sat down and ran the numbers and found out it was actually giving me the best return. The point is that if you are not measuring and analysing your marketing spend then you are probably not making the best choices about what to spend your marketing budget on.
These indicators don’t have to be mind bogglingly complex equations – just something as simple as taking the amount you have spent on a campaign and dividing it by the number of leads it gave you. Then you can work out how much each of those leads cost you in £’s and whether that was more or less than the return. There really is no need to get too complex here.
The other thing to bear in mind is that you want to focus not just on the quantity but also the quality of leads. At first glance your website may be generating more leads than your leaflet drops, but this does not necessarily mean that the website is better if the leads that it generates only spend a small amount.
The indicators and tools you come up with will be specific to the type of business you run, so it is worth speaking to your accountant or business advisor who will be able to come up with some suggestions about indicators that may work for you.
How much do I optimise marketing spend?
It is no surprise that businesses that spend more on marketing have, all being equal, faster organic growth than firms that spend little or nothing on marketing. That’s kind of a no-brainer, but it depends on the type of business you have.
If you are a new start up creating a marketing budget, you should aim to spend at least double what you think you are going to need. That sounds scary, but it doesn’t have to be. Let’s put it into context.
Once you have started trading, marketing will be your top priority and your highest spend for the first couple of quarters, if not the first year. You are starting from zero customers with no goodwill. How much would it cost to buy a ready-made business with those customers already available to you? Much more than your marketing budget – absolutely.
If you are an existing or well established business, you have the advantage of already knowing (after following my above advice) what works and what doesn’t. You should be able to use the basic indicators and measures to work how roughly how much extra revenue you can generate for each extra £ of marketing budget. It then simply comes down to the capital you have available to invest and how quickly you would like to grow.
So, the answer to the question really does depend – but one thing is very clear. All businesses need to spend some money on marketing. Whether you are willing to invest heavily or you have a modest budget, you can expect to see a return on your investment that is bound to outweigh the interest rates at your bank.
Matthew Russell ACA MAAT MSc (Econ) Bsc (Hons)
Chartered Accountant, business and tax expert