How Much Is Enough?
“How much should we budget for marketing and sales?” is a question we are often asked. The answer is, well…it depends.
Marketing Budget
First of all, it is important to establish a preliminary marketing budget based on the type and maturity of your business. If you’re a high-margin business, you can make a case that you want to continue to spend until you begin to see diminishing returns on your investment. Along that line, another important point to consider is the lifetime value of a customer. Establishing appropriate metrics is the first step in knowing when enough is enough.
As a rule of thumb, a new business trying to establish itself, needs to think 5 to 10% of projected gross sales (remember – gross sales will most likely not be that high a number compared to where you would like it to be in 3-5 years). Because of this, we recommend spending at the level of your projected sales – not last year’s actual.
On average, if you’ve been around awhile, we’d recommend lowering this figure to 3 to 5%. If you are an established business, operating for some time now without much marketing, count your blessings…and set aside perhaps 2 to 3% of projected gross sales. While it’s nearly impossible to give you a rule of thumb for marketing due to so many variables, allow me to make a few comments about what is ultimately needed.
Sales Budget
What you should allocate for your sales budget depends on a variety of factors. First of all, your sales cycle must be thought through. Second, determine where there are opportunities for process improvements, automation, coaching, and stronger sales management improvements.
Another important point – many people confuse marketing with sales. The truth is, in nearly all cases, it is impossible to simply market your way to success. At some point, somebody has to move the customer from an interested prospect to a client-signed-on-the-dotted-line. Many organizations or new product initiatives within larger companies cease to exist, or don’t perform to their potential, after just a few years because they are unable to get a steady flow of paying clients, or don’t establish the critical mass needed to be sustainable.
That’s why, early on, principals may need to invest an inordinate amount of time, energy and effort into presenting proposals and closing orders (Sales 101). Author Michael Port has suggested that company founders often have to spend as much as 70% of their time early on simply to build their cash flow. Since most principals don’t count this as one of their most favorite responsibilities, at a certain point (the sooner the better!) there is an attempt to hand this function off.
But without the proper strategy, selection, training and support, this is often a disappointment – definitely more costly than it needs to be, and risky to the success of the business. The good news is it doesn’t have to be with proper marketing and sales solutions available to raise the odds significantly in your favor. These solutions may include assessments of your team, inspection of your sales activity, analysis of your processes, and use of effective technology just to mention a few.
Closing the Gap and Achieving Increased Returns
Marketing, on the other hand, is the work required to provide a steady stream of prospects to your business. It is our belief that many organizations make the mistake of believing they can hire a less experienced person, or outsource this function and forget about it entirely. The truth is – your marketing needs to have “A” players involved! But the fact is, someone at the very top of your organization needs to be actively involved. All of the following activities, for example, require top-level attention:
- Understanding your ideal client.
- Understanding the tangible value you represent to that client.
- Knowing how they prefer to receive and process information.
- Understanding what they need to hear to feel comfortable buying from you.
- Understanding the sales process.
- Ensuring proper communication between marketing and sales.
And there is more!
Now a final bit of good news: all of this costs less in real dollars than it did just a few years ago, and can be paid for in many cases with an existing marketing and sales budget. Email marketing, Web site development, phone prospecting, and CRM tools cost a fraction of what they once did.