Marketing is essential for growing your small business, but it's important to do it in a way that's sustainable and affordable. This will help you allocate your funds in the most effective way possible, and it will also help you to track your spending so that you can adjust as needed.
In the post below we'll cover how to determine how much to spend on marketing, and how to create a plan to meet your goals. You'll find a calculator within the post that you can use to generate a total marketing budget amount.
First, let's look at the big picture, then we can zoom in on particular areas. Here are some questions to consider to help us get started:
If you haven't already, be sure to complete the Circuit Interview & Review. It will allow you to go deep into your positioning, competition, and more.
This may seem obvious, but many business owners don't stop to take the time to establish clear goals for their marketing campaigns. You can't measure success if you don't know what your goal is. It's okay to have a broad goal for now, then narrow it down over time. Here are a few ideas to help you get started.
I was never good at math in school, but it's an essential part of any marketing plan. You need to know how much you're able to spend to acquire a customer. If you don't know this number you risk overspending and losing money.
When you're starting up you may need to spend more to acquire a customer than an established business would need to spend. Ideally, even if you're spending more up front, you will keep the customer for a long period of time.
The first calculation to consider is your customer lifetime value. This is how much revenue you expect to receive from a customer over the course of their relationship with you.
Here's how to calculate this:
Average order value * Average number of transactions per year * Average number of years as a customer
For example, let's say you have a clothing store. On average, your customers spend $50 per visit, and they shop 3 times per year. They continue to shop at your store for 5 years.
50 * 3 * 5 = $750
If you're not sure what your average order value is, you can determine this by taking your total revenue and divide it by the total number of transactions. If you're a start-up and don't have this data from the previous year, you'll need to estimate it based on projections.
The next number you need to know is how much it costs to serve each customer. To find this number, add up your total expenses for the year, then divide it by the total number of customers.
Here's the calculation:
Expenses / Total number of customers
Using our clothing store example, let's say your expenses, including things like salaries, cost of goods, rent, etc. equal $200,000 for the year, and you have 5,000 customers over the course of a year.
200,000 / 5,000 = $40
This means you need to bring in more than $53.88 per customer per year.
Continuing with the example above, if you know that you earn $150 per customer per year, and $750 over the course of the customer's lifetime, and it costs $40 to serve that customer every year, you can determine what you're able to spend to acquire a new customer.
Take the difference between the yearly revenue and the yearly expenses per customer:
150 - 40 = $110
You could spend up to $110 per year to acquire each customer and break even for the year. You'll likely want to keep some profit or make other investments, so let's roughly divide this number in half for our example: $55 per customer.
Knowing your lifetime value is higher, you may want to invest more than that in marketing. Deciding what number you're comfortable investing will come down how big your lifetime value number is, how much competition you're facing, and other market factors that are specific to your industry.
Now, multiply this number by the number of new customers you hope you to acquire in the next year. At roughly a 15% increase in customers, you'd like to acquire 750 new customers.
55 * 750 = $41,250 total yearly budget
These are very basic, surface level examples. They don't take into consideration factors like variable costs, market conditions, competition, etc. But it will give you an easy starting point to create a marketing budget.
Fill in the fields above the "Calculations" section, and the numbers will generate automatically for you.
Once you know your budget amount, you can start to allocate it. Reference the Campaign Design & Delivery section of the Open Source Marketing System to create your overall marketing plan. If you completed the Circuit Interview above this will help you make campaign design decisions.
Review each of the 6 campaign steps:
Each of these steps is an important of your overall marketing strategy. An easy place to start is to consider which area is your weakest right now. Are there any holes that need to be filled? For example, maybe you get a lot of new business, but not very many repeat customers. Which tactics in the Continuity step can you apply to bring customers back repeatedly?
Some steps will need more attention than others depending on your business. Consider the problem/solution awareness level of your market, your competition, and any leverage you can take advantage of.
Another great place to start with your marketing plan is with the highest ROI activities. Some marketing tactics, such as search engine optimization, will take much longer to produce a return. Others, like digital advertising, can often produce immediate results. On the other hand, you may see a higher overall ROI with longer-term tactics. You'll need to weigh these trade-offs and decide where to focus your energy. In marketing, you either have to spend money or time.
Be sure to track your results so you can measure the ROI of your campaigns over time. You'll start to see a clear picture of what's working and what isn't. Not only will you be able to increase ROI, but you can start to optimize for higher lifetime value as well.
While planning your marketing strategy, you'll likely find a few quick wins that you can implement immediately. These are easy tasks that have a high impact, but don't take up much time or money. Here are a few ideas to get you started:
Once you have a strategy in place, and you know what your goals are, it's time to put in place deadlines and assign responsibilities. You can use a calendar, a project management system, a spreadsheet, or any other tool to keep everything organized. For each piece of your campaign, answer the following questions:
Putting a plan in place will help you stay on track and on budget. It's easy to let things slip through the cracks, so make sure to check in regularly to review progress.
Creating a marketing budget & strategy can be a lot of work. It takes creativity and attention to detail. It may be tempting to simply throw money at advertising or hiring various contractors to handle it for you. But if you're not an active participant in setting the course for your goals, it will be a huge waste of money with no results to show for it.
Warning #1: Throwing money at advertising won't produce results unless it's driven by strategy.
Warning #2: Don't do something just because it's trendy.
All of the kids might be on TikTok today, but does it really make sense for your business? Maybe it does, maybe it doesn't. But if you are making the decision out of FOMO instead of based on your overall strategy, it will be a waste of time.
There are a couple of different ways to approach hiring marketing help. It will depend on the amount of time you have to manage marketing activities and your budget.
If you're not sure who to hire feel free to reach out. We're always here to give guidance and point you in the right direction.
