Smaller businesses cannot afford to spend money on marketing and advertising that doesn’t provide a good return on investment (ROI). Overspending on marketing that isn’t working is common, and it is the first thing you need to address. Drew Deraney, a Cost Reduction Specialist with Schooley Mitchell, can tell you how critical it is for every business to be smarter about their operations costs – including marketing. He works with companies of all sizes to find areas in which they are overspending on operations costs. Here’s Drew talking how 85% of businesses overspend.
Regardless of how much you spend on marketing, you need to maximize the results you get. Starting with a solid strategy that leverages your budget across the marketing tactics that will get you the best results is key. It will help you maximize the impact of your marketing without overspending, but you need to know where to cut and where to spend – and that depends on your (measured) results.
In addition to creating a strategy and setting a budget, you need to establish the metrics you will use to ensure you are getting a good return on investment. Using the correct metrics is the second key to getting the best results from your marketing budget, and the metrics can be tricky. Many companies rely on “vanity metrics,” like email open rates, which really don’t tell you much about how you’re doing towards your goals. Using the right metrics is crucial (here’s a blog on choosing the right metrics).
One-third of small businesses spend less than $10,000 per year on advertising. They just don’t have the revenue to justify more, and that’s okay. The trick here is to ensure the budget is applied wisely. If you waste money on tactics that are not going to provide the results you need at the budget you set, you are better off going in a different direction. Choosing the mix of marketing tactics that will produce the desired results (and revenue) is the third key to getting as much as possible from your budget (here’s a blog on getting better marketing results).
A revenue to marketing cost ratio is a good way to do a fast-check measurement of the financial results from your marketing spend. This number represents how much money you generate for every dollar you spend on marketing. An average to above average ratio is an indicator that you are getting good results from your budget. What’s a good ratio? For most companies, a ratio of five to one (5:1) is considered average and anything higher would be considered strong. A ratio of ten to one (10:1), would be exceptional. Your target ratio will be largely dependent on your cost structure and the benchmarks will vary depending on your industry.
Getting the best results from your marketing budget is a matter of strategic planning, using the right metrics, and choosing the right mix of marketing tactics. You need to avoid overspending, but you need to apply the budget effectively, and measure your results properly too.
If you would like to speak with Drew Deraney of Schooley Mitchell to see where you might be able to save money with your operations budget, send him an email or call him at 201-857-3589.