How to Plan Your Marketing Budget
Originally published: 02.01.07 by Ruth King
Base your strategy on Web site updates, customer referrals, and direct mail.
Without sales, you won’t be in business for long. Marketing drives sales. So plan now to boost sales with a spring marketing plan. Be advised, however: As you ramp up for the busy spring and summer months, you’ll spend money marketing before you see a return on those dollars. How much is enough? Too much? A budget is your roadmap to prudent spending. Just as important, you must track your marketing results to ensure that you are getting a return on those hard-earned dollars.
Industry averages show that most contractors spend between 3% and 6% of revenue on advertising (net of co-op from manufacturers). To set your marketing budget then, you should review your financial statements, determine what your service, service agreement, and replacement revenues were in spring 2006, and plan to spend between 3% and 6% of that amount. If you think your revenues will be higher in 2007, then justify the increases and determine the total budget based on projected sales. That’s the easy part. You now know how much money to allocate to marketing.
Where should you spend your marketing budget? If you are participating in a
Your internally generated marketing plan should include Web site, customer referral, and direct-mail programs. The expenditures in these areas plus the expenditures in your co-op advertising will make up the total of your spring marketing budget.
Web site: If your Web site is not up to date, spend what you must to update it. Customers search the Web for information about service providers before deciding which company to hire, and they expect to find information about your company there. If they don’t find the information they need, you’re at a disadvantage to competitors who have current, professional Web sites.
Another reason to have a professional Web site: What better advertising for your company than when your dispatcher says, “While the technician is on his way, check out our Web site to get some coupons that you might be able to use on this call.” People will go to your Web site, read what you want them to read, and get rewarded with a coupon for doing so.
Customer referrals: We all know that word-of-mouth is a company’s best — and least expensive — advertising, so encourage it with a customer-referral program. To determine how much to pay for each referral, first determine your cost of gaining a customer. When you consider all of your advertising costs, you’ll probably find that your acquisition cost per customer is at least $100, and probably much higher. Even if it is only $100, then paying someone $50 for a referral is an inexpensive way to generate new customers. Referral customers also are more likely to use your company because they know someone they trust who is satisfied with your service. To determine your referral cost for the spring budget, estimate how many referrals you can generate during the time period and multiply that number by $50.
Direct mail: This is the easiest program to budget. Set up a three-month program in which you send a postcard each month. Devote each postcard to one theme, such as spring check-ups, accessory sales, or replacement sales. For the most impact, use the same format and color for all three postcards, so people will get used to seeing the postcards.
To create your direct marketing mailing list, add together the number of customers who do not have maintenance agreements and the number of customers in your database that you haven’t contacted in the past three to five years. Multiply the total by 50 cents to cover the cost of the postcard and postage each month, and then triple the cost to get your total budget for the three-month program.
Now total all of your projected expenses: co-op advertising, Web site, customer-referral, and direct-mail programs. This is your marketing budget for the spring. Verify that it equals 3% to 6% of your service, service agreement, and replacement revenues. If it is over, decide whether you should cut back in any area.
Put the spring marketing activities that you’ve planned and the dates you plan to implement them in a spreadsheet. Along the X-axis put the weeks and months. Along the Y-axis put the spring marketing activities. Post the spreadsheet in a place where everyone can see it as a constant reminder. Also, create a personal spreadsheet to track spending. This personal chart does not have to be posted.
Then, when the results start coming in, incorporate the results in the poster, so everyone can see what is happening. Then when 2008 budgeting time comes, you’ll know what worked and what didn’t work, so you can repeat the positive and eliminate what didn’t produce results.
Articles by Ruth King
Understand Your P&L Statement: Gross Margin
Understand Your P&L Statement: Cost of Goods Sold
However you decide to categorize expenses in your P&L, it's important to be consistent.
Understand Your P&L Statement: Sales vs. Revenue
Sales are critical to survival — when revenue is actually generated is even more critical.
The 20 Percent Profit Myth
For a realistic goal, include owners’ compensation in the net profit equation.
Rethink Your Bonus Strategy
Enact a profit sharing program, rather than a bonus entitlement.