If you were guaranteed a return on every marketing dollar you spent, how much would you invest in marketing? There’s zero risk, so, every dollar you have, right? Well, since there’s no way to guarantee a return on every marketing dollar you spend you’re not likely to invest everything you have. So, how much should you spend on marketing?
I don’t know of many organizations that don’t struggle with this question and there’s no simple answer. But, there are at least two other questions that will help you find the answer. The first question is:
How much is your average customer worth?
Understanding the value of a customer (in terms of gross profit) is the single most important piece of information needed for figuring a reasonable expense for marketing. Without an understanding of the monetary value of a sale, it’s impossible to decide how much should be spent on marketing to get one.
To figure your customer or sale value, take your average sale amount and subtract the costs associated with the sale (including commissions) to get your average gross profit. Generally speaking, marketing expenses should be a percentage of this number which I’ll refer to as the “marketing cost per sale”.
For example, if your average gross profit per sale is $10,000 and you allocate 10% of that for marketing then your marketing cost per sale would be $1,000. Of course, you’re not likely to get a new customer each time you invest $1,000 in marketing which brings us to the next question.
How much am I willing to risk?
Most of us intuitively know that it’s impossible to succeed without taking risks but subconsciously almost everyone tries to avoid them. The problem with this is marketing can be extremely risky. And, unless you’re satisfied (and the people you report to are satisfied) with the results you’re currently getting from your marketing, you’re going to be forced to take risks. How much you’re willing to risk is subjective but avoiding risks altogether isn’t an option.
Sometimes the answer to this question is whatever you can afford to lose. Sometimes it’s whatever you’re willing to loose. But, in either case it’s an important question to answer when determining how much you should invest in your marketing.
An ounce of execution can be worth a pound of planning.
I’ve always been impressed by those ultra-detailed marketing plans. You know the ones - they’re about 100 pages long and they spell out every inch of a marketing strategy.
As impressed as I am by these plans, I rarely use them. Why? I can’t remember a time when everything went “exactly as planned.” In my experience, you never really know what to expect until your plan is in motion.
That being said however, planning IS extremely important. I don’t execute anything without some initial planning. Rather than spending tons of time trying to predict the unpredictable, I try to get the M.O.S.T. out of my planning by staying focused on: my motives, objectives, and strategy; then I let many of the tactics define themselves.
Motives – The motives tie the plan into “the big picture.” In addition, the motives are the underlying drivers that create the purpose for the plan. For instance, let’s say my marketing vision is to create a cost-effective lead generation program that consistently generates 25 qualified leads per month. In this case, my motive might be to identify and test marketing opportunities that I can both afford and employ again and again.
Objectives – The objectives define the specific outcomes I’m attempting to achieve. Objectives should be SMART, that is: Specific, Measurable, Attainable, Realistic, Tangible or Time-bound. For example:
‘Our objective is to generate 200 qualified sales leads in 90-days with a fixed budget of $8,000.’
Strategy – The plan’s strategy should outline how the objectives will be accomplished. For instance, your strategy might state the following:
‘Using personal printed mail, we will drive hand picked recipients to a online video where they can learn more about our services and schedule a meeting with a sales rep.’
Tactics – Finally, there’s the tactics or the specifics of the strategy. Your tactics will include the timelines, tools, technologies, methods, personnel, etc. that will be used to execute the strategy. The tactical component of the plan is usually the most detailed, time-consuming and most likely to change when things get started.
Because tactics tend to get refined after a plan is put in motion, I don’t spend as much time as others on the tactical detail. Instead, I keep a clear focus on my motives, objectives and strategy. Then, I outline general tactics knowing full well that, over time, the M.O.S.T. effective plan will evolve.
Given the option play the odds that are in your favor.
Anytime you spend a single dollar on marketing, you’re making an investment, and you’re hoping for a positive return. However, like investing in stocks, with each marketing investment there’s a level of risk. To manage risks, consider balancing your marketing mix like an investment portfolio.
Financial planners tell us that balancing investment risks is essential to building a strong financial portfolio. Balancing risks is also necessary for building a strong marketing portfolio.
Assuming you’re time and money is limited, there’s an element of risk with every marketing program you do. So, like stocks, you should classify marketing activities as higher or lower risk investments.
Here’s a basic guideline.
Higher risk marketing activities: Marketing activities that you’ve never done, or that you can’t measure.
Lower risk marketing activities: Marketing activities that are measurable or that have worked for you in the past.
Many of us have a tendency to go for the jackpot and roll the dice on higher risk/higher reward campaigns. But, like high risk stocks, along with the potential for bigger payoffs comes a better chance of failure.
I don’t mean you shouldn’t take risks. As much as it hurts, failures are a necessary part of creating success. However, the odds aren’t in your favor if everything you do is a gamble.
So, what’s the answer? What’s the right the right ratio between high and low risk marketing? It depends. It depends on your market, your budget and sometimes your gut feelings. But, if you still want an answer, my goal is to go for an 80/20 split. 80% of the budget goes to tested and proven activities, and 20% to unproven and exploratory stuff.
OK, so risking 20% won’t make for a great story about how you put it all on the line and hit it big. But, wouldn’t you rather play the odds that are in your favor. After all, how many times have you’ve hit a ‘marketing jackpot’? Consider that, and then consider working with a balanced marketing portfolio.
Although there could be dozens of questions that a complete and well conceived lead generation plan should consider, the following ten are crucial.
1. What is the target market?
Your target market is the universe of organizations that you want to sell your products or services to. Begin defining your target market by writing a short description containing key attributes of the organizations you are focusing your lead generation efforts on.
For example: ‘Privately held Medical device manufacturing companies in the South Eastern United States with revenues between 10 and 200 million dollars.’
2. What is the size of your target market?
The total number of organization in your target market could potentially buy your products or services. Your target market size should only include people/organizations you could sell to. If you can’t sell - for example, because of geographic constraints - they’re NOT a prospective customer.
3. How are buying decisions made?
Once the target market is defined, the next step is to identify how buying decisions are made. This will include who the decision makers and influencers are as well as points such as whether or not there is a bidding process. In an ideal environment, this is the same or similar for all the organizations in your target market. However, if not, it’s important to clarify this in your plan.
4. What’s the value of a customer and a lead?
The value of a customer is not just important for calculating your market opportunity, it’s also important for determining what an acceptable cost-per-lead is. You should consider both the gross revenue value and the gross profit value for a single sale and over the customer lifetime/lifecycle.
5. How accessible are your prospects?
If you’ve determined by answering question #3 that buying decisions are made only by the CEO of organization within your target market or that buying decisions differ from organization to organization, this will likely have a significant impact on your lead generation strategy.
The harder it is to identify and communicate with prospects the longer it takes and the more it costs to turn prospects into leads.
6. What’s your sales closing ratio?
How many qualified leads (on average) does it take to close a single customer? For example, if you needed to engage ten qualified prospects to get a sale, your closing ratio would be 10 percent.
7. How long is the sales cycle?
From the first time a salesperson makes contact with a qualified lead, what is the average length of time it takes to turn a lead into a customer?
8. What’s your sales goal?
By answering questions 1-7 first, you should be able to create realistic sales goals based on your market size and available time/financial resources.
9. How are leads captured and qualified?
In the end, marketing is about supporting the selling process. Answer question 9 by explaining exactly how. For example: marketing might be used to drive sales through an online store or for generating leads for salespeople.
10. How long is the prospect cultivation period?
The best way to minimize risk is by acknowledging it. Any astute business person recognizes risks and knows that the most risky plans are the ones that claim “no risk.”
About the author.
Steve Tingiris is the founder of Prospect Smarter, Inc. and Enthusem.com. Since 1995, Steve has been helping businesses build their sales pipelines and increase revenues by maximize the effectiveness of their prospecting and lead generation programs.