Top Ten Questions Small Business Owners Ask

#3. How Much Money Does a Small Business Need to Spend on Marketing?

Small business owners have a love hate relationship with marketing; they know they have to do marketing to fill their sales pipeline to get new customers. At the same time, they are never quite sure the overall effect of their marketing, so when things get financially tight, it is one of the first things that they cut. Fortunately, there is a formula for how much to spend on marketing for a small business that produces results.

How not to do marketing

When I ran my scientific software catalog business in the 1990’s, the sellers of the these very technical products were scientists, academics and engineers. They did not believe in marketing, but rather “If I build it, they will come!” I was finally able to convince, one owner, Joe to hire a Marketing Director so he could expand his business. I called the new hire, Mark on his first day and congratulated him on his new job. I then called him a few weeks later to see how he was doing. Joe, the owner answered the phone. When I inquired about where Mark, the new marketing director was he said “Well we tried this marketing thing for a few weeks, it did not work so I let him go”.

Marketing is not a project or a one-shot deal. It is an always on function and process in your company where you are constantly testing to evaluate the results. Too many small business owners try it for a short period of time especially when sales are slow and then stop it when they get business as a result of that marketing. (I call this the “Double Helix Trap”), This is not effective and will keep your sales pipeline bare.

How to do marketing effectively

Small business owners are busy and many of them don’t enjoy the marketing process. They think its a lot like selling and they hate the idea of rejection from prospects they don’t know. Instead, think of marketing as educating and being there when the customer is ready to buy. This is why marketing is about consistently testing a variety of strategies over a long period of time.

First decide what solution you are educating prospects on and where they are most likely to see your information repeatedly.  Then select a few marketing channels (online advertising, social media, print advertising, email, etc)  where you will provide this message at least for three months. Make sure you can measure the results. With digital marketing this is easy, but with print or trade show marketing this becomes more difficult. Use separate telephone numbers or email addresses to identify the source without having to ask the prospect (because they won’t really know since most people say “I just googled you”).

Test these campaigns for 1-3 months depending on the frequency of prospect interaction. Cut the marketing initiatives that fail and boost with increase marketing spend the ones that succeed.

How much to spend annually on marketing

Most small business owners spend far too little on marketing since they see it as a cost. Instead, think of it as a cost of acquisition and an investment in attracting future customers. Ask yourself the question. “If the profit on each sale is $50, would you spend $5 to acquire a customer?” Yes! “If the lifetime value of a customer was $1,000 would you spend $100 or $200 to acquire that customer?” Yes. Your marketing budget should be at least 5% – 20% of your lifetime value depending on where you are in your business life cycle and what the gross margin is. The closer you are to start up mode and the higher your gross margins are  should mean an increased marketing budget.

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