Welcome to this Marketing School How-To Guide, “How Much Should I Spend On Marketing.”
This is the most frequently asked question I get from clients when it comes to marketing. The answer to this question is a resounding, “I don’t know”.
Probably not the answer that most people including you are looking for, right??
Well, the reason is that there are many factors going into answering this question. So where do we start?
How about at the beginning.
What Are The Different Forms Of Marketing?
Marketing is a blanket term, and refers to advertising, public relations, promotions and anything else you might do on a day-to-day basis; for example, Google AdWords, social media advertising, print ads, sponsorships, collateral and even happy hours. So with that said, how do you know what you should be doing and how much to spend?
That depends on several things, however, these are the ones that I find most impactful:
- Do you sell a product or service?
- Do you sell to other businesses or to consumers?
- What is your Customer Lifetime Value (LTV)?
- What are your sales close rates?
- What are your costs of goods sold?
Do You Track Your Lead Sources?
Let’s discuss the basics. If you are not tracking your lead sources, then you will never know where and how to spend your marketing dollars. Yes, there are tons of software programs out there to track your lead sources, and guess what, there are even some free ones.
Recently Hubspot released their CRM tool for FREE, yes for free. Now they will try and upsell the hell out of you, but for a powerful CRM tool with lots of integrations, this is a great choice. You can find out more here.
There are some other tools that may pique your interest, but that is a discussion for another time.
A perfect addition for all you WordPress website users (which hopefully you are using), Hubspot has a great plugin for WordPress which you can read about here.
This is the easiest way to ensure that your leads are funneled directly into a CRM tool, and have the lead source tagged automatically based on the web property/form that the user opted into.
Yes, it’s that easy. And did I mention, it’s FREE???
Lead tracking should be detailed, and if you are not a CRM shop, then use a spreadsheet, but that is pretty tedious and very manually driven, therefore prone to errors or lack of consistency.
Once you know what lead sources are performing the best for quantity, quality, and profitability, that’s where to focus your marketing attention.
My 5 Steps To Proper Lead Tracking
With so many forms of marketing available, how do you know which ones are performing best? The answer is more of a strategy than a solid answer because in the end, if you are not tracking, then you will never know.
Digital Marketing is by far the easiest way to track lead sources. If you are using Social Media, Google Ads, YouTube Ads, email, blogs, or another form of digital marketing you should be sending people to a landing/capture page. This is where the magic happens.
Although you can drop a pixel on a user when they interact with a social media post or a Google Ad, this is great for remarketing purposes only, but you never get their contact info unless they opt-in to a form. This form can be built in many ways, but I highly suggest the simplest method possible. Bug-fixing lead flows is not fun, so why make it harder on yourself if you don’t have to.
Step 1: Build An Ad
It doesn’t matter where you build your ad, i.e Facebook, Instagram, Google, etc… All of these ads will allow you to send your user somewhere. Keep in mind a blog post or an organic social post can also be considered an ad. You don’t always have to pay for it:)
Step 2: Build a Landing/Capture Page
There are lots of ways to build a landing page. If you are skilled or feeling brave, you can build it right in your current website platform. If you are not sure how to do that, there are some great tools such as Instapages, or Leadpages. These are pretty good, but they are at a monthly cost and they host your pages. This sounds good, but in the end, you are losing out on some serious SEO juice by sending people to some other domain rather than your own.
My favorite tool for building landing pages is OptimizePress. This is a plugin for WordPress and has all the bells and whistles but allows you to build the pages right in your site, independent of your current theme. They are in the process of releasing 3.0 so I would wait until it is fully out before I jumped on board. As a power user, I got an early release to 3.0 and it is really nice.
All of these tools have tons of great templates to use or get inspiration from, or you can look at a site called Landbook for inspiration.
Step 3: Add a Form
A landing/conversion page is not complete without a form. All of these tools have easy ability to add a form, but remember, we want to track the lead source, so using an integrated Form/CRM tool like Hubspot is the way to go.
Step 4: Add Lead Sources To Your CRM
Before your leads can be tagged properly, you need to set up the lead sources in your CRM tool and map the forms to those sources. This way as soon as a user opts-in, they are ported to your CRM and tagged accordingly.
Step 5: Review & Maintain
Now that you have the machine built, you have to review things and maintain things. Because yes, technology breaks for no reason. So once in a while, jump on your site and fill out a form, or eat the $1 and click on an ad you made and follow the trail.
Calculating Your Marketing Budget
Ok, this was what we were here to learn, right? Well without the prior information, you would have no way to know what lead is coming from where.
A basic rule of thumb is as follows:
- For new companies, at least 12%-20% of your gross revenue should be allocated to marketing.
- For established companies, at least, 6%-12% of your gross revenue should be allocated to marketing.
Well, that seems like an easy calculation, right? But that is not all. What about Profitability and Return on Ad Spend or ROAS. ROAS tells you at the most foundational level if a marketing channel is performing at a level that will allow for profitability.
For ROAS, the higher your number the better. That’s because the metric tells you how much revenue you generate off each advertising dollar spent. So for example, a $5:1 ROAS means that for every $1 spent on a marketing campaign, you generate $5 in revenue. So for example,
- If you spent $10,000 on a paid search campaign in May and generated $50,000 in revenue, your ROAS for paid search is $5:1. ($50,000/$10,000= $5).
Whoo Hoo! Wait, there are more costs to account for. A positive ROAS does not mean that you actually made a profit. So before you blindly follow a calculation, think, logically
Here are some things to factor into your calculation:
- Is there a cost to manufacture or acquire the item before you sell it?
- Is there a shipping cost, delivery cost, or labor cost to get it to the customer?
- Is there a sales rep involved that requires a commission payout?
Here is a basic example. Please, keep in mind that in a real-world scenario, a $30 product should never cost you $5 to acquire a customer…
- A widget costs $10 to make
- Your sales price is $30
- This leaves you with a $20 margin
- It costs you on average $5 to acquire a customer
- Your sales rep gets a 20% commission
$30 sale price – $10 cost to make = $20 margin – $5 customer aquisition cost (CAC) = $15 – $6 sales comission = $9 profit per unit sold.
So if you want to make $5k in revenue, you would need to sell ~166 units. To acquire these customers, it will cost you $830 (166 x $5 CAC).
Conclusion
So the next time you want to know how much to spend on marketing, start by asking yourself how much it costs to acquire a customer, and how much revenue you want to make. Oh, and be sure to not confuse revenue with profit.
Watch for our next Marketing School How To Guide where we discuss the proper way to build a Landing/Conversion page.
