Perhaps you’ve heard it said that you’re more likely to regret the things you DIDN’T do, than you are to regret what you DID do. It’s a quirk of human nature that’s been validated by Cornell University research. And if you talk with business owners who’ve had to close their doors, the same holds true. Often their regret is not committing more effort and resources to bringing new customers through the door. What business owner hasn’t wrung their hands about how much they should be spending to advertise their product or service? A marketing plan is fundamental to any comprehensive business plan. There is a reliable and proven method of finding the ‘magic’ number for your business. But it’s not as simple as a flat percentage of gross sales. It’s a grid that starts at five-percent of gross receipts, but then asks a series of questions to fine-tune the number to determine a more precise level of spending for your particular business situation.
Does the age of my business matter?
Yes, the length of time you’ve been in business SHOULD influence your marketing budget. Older businesses with well-established brands can afford to invest slightly less (approximately one-percent less) in marketing themselves and their products or services than new businesses. It may be tempting when resources are tight to reduce marketing, but most business experts will tell you the best bargains can be had marketing in recessionary times. There may never be a cheaper time to change the dynamics of the market in your favor. And it is commercial suicide to drop off of your customer’s radar altogether. Customers can be fickle. Cutting messaging to them entirely leaves an opening for more hungry and aggressive advertisers to step in. All businesses, whether B-to-C or B-to-B are in a battle for TOMA, Top of Mind Awareness. The busier we all get, the less time we have to think about WHERE to go to find the products and services we need or want. Those customers researching options may only explore 2-3 companies. You must resolve to be one of them. Effective branding helps instill trust in your prospective customers. Trust that they will find the price and quality they seek with YOU.
Does location matter anymore?
Location is becoming a less important factor for some businesses in an online world where everyone has a website. But if you rely on storefront sales, location still matters greatly. With the right signage, a more prime location can act as its own marketing, slightly reducing, but not replacing the need to market your business. Businesses that are not on well-travelled roads will have to increase their visibility through marketing, hence a higher magic number.
But, I have no competition. Why would I need to market myself?
The level of competition in your field will help determine what your magic number is, but even if you have no current competition, people still need to find you. In fact, the more innovative the product or service you’re selling, the more marketing is required to help customers get their head around the new concept. The more explanation needed, the more targeted the marketing must be. Less innovation = slightly less marketing and a comparatively lower ‘magic number.’
What if I’m only selling to other businesses?
B-to-B businesses can get away with spend slightly less to market themselves than B-to-C businesses, all other factors being equal.
While we’re talking about marketing numbers, we thought you might like to know what the ‘big boys’ are doing – those publicly traded companies with the deepest pockets…and access to arguably the most industry research and guidance. After all, if you’re a small business seeking to compete in a global economy, it’s vital you understand the landscape.
What are the big guys doing?
Schonfeld & Associates researches what publicly traded companies spend on advertising each year. The Libertyville, IL-based company was founded in 1976 by late Northwestern University marketing professor Eugene Schonfeld. Their annual report, entitled ‘Marketing Ratios and Budgets’ gleans the SEC filings of the top publicly traded companies and reports on the actual amount companies budget for advertising and promotional expenses. The report originally sprung from work commissioned for a single client. Now in its 34th year, it is summarized annually in Advertising Age Magazine. While you can’t generally draw a straight line between these publicly traded businesses and YOUR small business, the trending information they contain is valuable.
Carol Greenhut, the President of Schonfeld & Associates, says, “Contrary to what some small business owners may believe, marketing budgets do not appear to have shrunk with the economy, as judged by the spending of publicly traded companies.”
The yardstick most commonly used to measure any company’s marketing investment is the Ad-to-Sales Ratio, or the percentage reached when you divide total ad spending with the total amount generated from sales. Ad-to-Sales ratios have become the universal benchmark used to compare ad spending across various industries. “Ad-to-sales ratios haven’t changed,” according to Schonfeld’s Greenhut, “but where those dollars are being spent has changed. As new online options have emerged, advertisers continue to test the waters in non-traditional media.”
Every year Schonfeld and Associates report, which comes out in mid-to-late June, encompasses the previous year’s budgets, and projects spending for the two following years. Some interesting notes in this year’s report; the largest growth in advertising is projected in Health Care, largely driven by health care reform. Perhaps not surprising, the grimmest view for advertising growth was with Banks. Schonfeld forecasts cuts in advertising budgets of 17.4% for the Financial Services sector, which is still reeling from the financial meltdown.
So what does this all mean for YOUR business?
While it’s important to have a sense of the landscape you are doing business in, you can’t assume that your marketing budget will be identical to that of your competition. There may be factors you need to overcome, that your competition doesn’t. It is crucial that you determine the amount of marketing that YOUR business requires. Arriving at the appropriate ‘magic number’ and marketing budget is part of the foundational work that a marketing consultant will help you determine. That piece should be part of any comprehensive marketing plan.
Marketing 101 – Why We Market
Marketing is the art and science of creating an appetite for what you offer, turning up the urgency for action NOW and helping potential customers find you. Marketing amplifies the effect of word of mouth advertising. It’s great that your customers are singing your praises to their friends. That’s the way it should be. Given everyone’s limit of time and geography, word of mouth can only take you so far. True, social media has expanded everyone’s sphere of influence, and social media is a valuable pillar of any marketing budget, but while it will increase your reach, it is less likely to get you the frequent exposure to your message that will drive customers to action. But none of us are likely to switch loyalty to a product or service based on a single recommendation. Usually the first few exposures simply introduce the option to your consciousness. The next few exposures, if the message is well-received, may help to re-shape your attitude about the choices you’ve been making, and will present this new choice as a viable option. Seven is the magic number for frequency. Ad recall and response rates are well documented to rise with the number of impressions, as demonstrated by the Ebbinghaus Retention Curve. Most people need to be exposed to a message 5-7 times before it has the potential of influencing behavior. It is referred to as the ‘rule of seven’. Social media and word of mouth can HELP get you there, but unless you are targeting customers who live on Facebook, you’re not likely to get what you need to keep your business alive with social media alone. The goal should be for customers to see your ad in proximity to when they might be already thinking about seeking out your product or service, then, as they consider the decision recall other times they’ve seen your brand or heard of your business. Repetition alone will help instill confidence.