This is an oft asked question that goes round and round the agency circles, among consultants when they are chatting at Panera over lunch, or in boardrooms before “the big guy” gets there.
“Why is <insert company name> not willing to commit to achieve X amount of sales through the use of a full press sales and marketing plan?”
Have they been burnt before? Are they afraid of committing too many resources (money/people)? Do they not trust the agency they are working with? Is it a cash flow thing?
I mean, for those of us that work company marketing plans every day, we see the whole gamut of executive reasoning and business owner commitment. There are companies that fiercely seek “value” through spending less on marketing, with the reasoning, “If I spend less this year on marketing, I’ll have more money to apply to X project, or Y project”, or better yet… “it will go in our rainy day fund”. We know in reality that isn’t going to be the case. Even a “large” marketing budget cut could barely cover the cost of the next business outing, or ¼ of an FTE for the year. These kind of decisions are like dropping dollars to pick up nickels.
The general rule of thumb has always been that companies should spend around 5 percent of their total revenue on marketing in order to maintain their current market position. Companies looking to grow or gain greater market share should budget a higher percentage—usually around 10 percent.
Total Revenue x 5% = Marketing budget required to maintain current awareness and visibility
Total Revenue x 10% = Marketing budget required to grow and gain market share
Say you own a business that that had a total revenue of $200,000 last year. This business, in order to just stay “as is” competitively should have spent $10,000 on marketing over that year long period. That number is wholly inclusive of both traditional (print) and non-traditional (digital/web) marketing.
Most business owners however want MORE customers and clients than they currently have. That will require them to spend more than 5% spend on marketing efforts.
The punching bag of the marketing industry has always been law firms/attorneys so let’s start there. In 2012, law firms spent just 2.3% of their revenues on marketing and advertising. A recent survey (2014) shows that law firms and attorneys earning at least six-figure revenues are still spending just 3.4% of their revenue on marketing. So they have:
So lawyers, through their own actions of low marketing spend, not only participate in a high revenue industry that is desirable to new entrants, but they knowingly allow this growing market-share to beat them and take their clients every day. It really is fascinating only from an observation point, because it is discouraging to see lawyers not wanting to “kill it”.
Good for you. You probably have a stream of clients that keep you busy, most of the time. But you probably want to know if you are spending in the right places. Here are some factoids on that:
Digital advertising was the fastest-growing category in 2014, with a 16.1 percent increase in spending, followed by video games at 14.3 percent and broadband at 9.2 percent.1
More than a third of CMOs say that digital marketing will account for 75% or more of their spending within the next five years. November 2015 2
69% of senior marketers are currently allocating their digital marketing funds to website content, development and performance optimization. 53% are spending part of their budget on social media community growth and engagement. May 2015 3
As you can see, digital marketing IS the direction everything is going in, so if you are still hanging onto using Yellow Pages (even YP.com is terrible) or spending large percentages of your marketing budget on print ads and brochures, you may want to keep an eye on the prevailing wind.
Find a digital marketing company that is responsive to your needs, understands your business, and can help you create a marketing plan to stick to that encourages business growth towards a goal of local/regional or national market dominance. Because wanting anything less really makes your business more of a charity, public service or “going concern”.
Go out there and KILL IT people.
1 Source: McKinsey and Company
2 Source: AdWeek
3 Source: Adobe