So you want to ask, you say hey let’s talk about marketing, you hear this question with a lot of clients and *
Okay so question I do what is what is their appropriate marketing budget and I know that you have run a full campaign and we have done some stuff for you as well. So when we talk about, what is an appropriate budget for a service business, a question I get a lot
Yeah
So and I do too and so I am talking about marketing budget, not just online marketing, I am talking marketing across the board here, offline and online
Yeah
Marketing in the company, so it is actually one of my favorite questions answered because I really, have recorded video about this before. I understand the question but it really in the sense, the question doesn’t make any sense you know, I will give you a couple of points on why that is and so I think it makes sense to people when I answer this way so my, let me first set out the questions and you do a couple of examples so the first question is, if your marketing is working and is making you money why would you limit it? Because you hit this preset budget and then if it was working, wouldn’t you just keep doing more so wouldn’t you then exceed your budget and then if it wasn’t working, would you keep doing it? Why would you? so, couple of examples there so if I have a budget, I am going to spend ten thousand dollars this year and that is my marketing budget for the year and I basically let me keep this really simple, basically, I find out that I can send, I can spend a hundred dollars on marketing and get back a client that will pay me a thousand dollars, that is a ten time, that I a good return. So if I can put out a hundred and get back a thousand, wouldn’t I keep spending a hundred and a hundred and a hundred over and over again and keep getting thousands back or would I say that once I have spent, bought, I can buy my leads in a hundred dollars each and then when I have spent ten thousand dollars, I know that gosh have I spent ten thousand one hundred dollars and get back yet another thousands, I mean I don’t know because I have said I was willing to spend ten thousand dollars this year. You would never do that, would you? no, okay so that is one reason why marketing budget doesn’t matter. The other one is if I have a ten thousand dollar budget and I put together a marketing piece whether it is or I do an online campaign and it is not working, would I keep spending because I have still got some budget left. No, I would, hopefully not completely stop. I would hopefully try something different and if that works, I do it. If it doesn’t work, I’d stop. So I think you know it is very hard to give any guidance on what a marketing budget should be. If you are mature company and you don’t want to grow much more than your marketing budget can be really really low, you are just may be all you are trying to do is bring in enough clients to keep up with the with the * as people move and you loose clients where as if you are extremely aggressive in your brand new company that is disproportionate amount of your income, disproportionate amount of your total revenue is going to go to marketing in those first, in those early years because you want to grow fast so that side I believe the way to think of, so it is not a percentage and it is not a specific dollar amount in terms of
No because
That’s the overall marketing budget
That is what people want to know when they ask that question, what percentage of my gross share, I’d be spending and or if I am in a specific industry, in a specific city how much should I plan to spend per customer
Right, no it is the wrong, it is a understandable question but it is the wrong question. So here let me give you another example. Let’s use a percentage because I often hear three percent. That is a number I have heard quite a bit. Okay so this is a, the * so in year one the business is going to make a hundred thousand dollars, just because you got lucky and somehow people just found you, you are going to make a thousand dollars so you get to spend the whole three thousand dollars this year so does that, do you really think that three thousand dollars a year is going to bring you a million dollar of the business for next year.
No
No, I don’t know, may be it is going to be bring another hundred thousand so then next year you are going to do two hundred thousand so now you got a whopping budget of six thousand dollars which is a good, is a pretty big budget for a lot of companies, now you are willing to spend six thousand dollars, you are going to now bring in two hundred thousand dollars of revenue so now, in year three you will do four hundred thousand, not until you are four, you don’t even a budget to spend about twenty grand a year, that is, it is going to go in a slow growth and I totally made those number out. I am not even saying for three thousand you bring in a hundred thousand business but that is probably actually
A bit optimistic
Yeah so right, so but that is the point, just think about how slow you would grow if that was the way you looked at it so may be in year one I made a hundred grand, maybe I spend fifteen thousand on marketing that year so anyway that is another, another good way to think about it so let’s talk about right, I guess one of the topics would be return. That is something I think you had mentioned before we start doing this, thinking about the return on your marketing. So the return on your budget, something along that line, people say well how much I spend and you often hear three percent. Well, something else I hear all the time is that somebody will do a marketing campaign and so maybe they spend five hundred dollars or a thousand dollars and they only got one customer and so they say this campaign suck, the marketing didn’t work, not going to do that again but then if you probe and ask questions that one customer they got is going to spend two thousand bucks with them. That one customer is making a stay with them three or four years and keeps spending two thousand bucks a year that customer’s value is worth a lot. Yeah and that is life time value so life time value is when you get a customer on average how long will they stay with you and then how much will they spend each year and getting even more advanced, maybe this year they only spend a thousand but because of your marketing you can get their spend up to thousand a year because you could sell more stuff. You got to think about that too just because your life time value based on what you are selling today is x who knows what it could be, it will be y when you start adding more services in your business so there is life time value concept sets out
Very important
It sets up everything. So I kind of touched on two concepts. One life time value, huge concept, two, don’t ever make marketing decisions or decision about continuing to run a marketing piece based on the number of sales. You make the decision always based on the dollar value of sales which is lifetime value. I would spend twenty thousand dollars to get one customer. If that customer is going to make me a million dollars or two hundred thousand dollars, I would spend twenty thousand all day long to get just one customer if you they are worth it. So you think about in terms of dollar value per marketing campaign, the return, not the number that comes back to you. I am just kind of dominating the conversation here but let me go ahead and say this too, you, when you get really advanced and this all really does have to do with budget but when you get really advanced in your business and you start to understand life time value of your customers what they are worth to you and you get to understand dollar returns, not percentage returns and you start thinking about what you can sell back into your clients. Well, there is a whole another concept and it is, in other industries, generally not what, most people don’t think about it in service industry but there is this thing the stock process of the back end cell. So let’s use a, let’s use a carpet cleaner for example. So a carpet cleaner might get two transactions a year or one transaction or one transaction every two years out of a customer and so maybe that transaction is a two hundred dollar carpet clean and so maybe to acquire that client, it cost him two hundred dollars to get a new customer through value pack or however he is doing it so he spend two hundred dollars to get the client. He makes two hundred dollars. He has effectively lost money because he had to pay an employee to go out there and get chemicals and all these things, so he is loosing money every time he is making a sale and so that is a really scary proposition for most companies so they won’t spend any money on marketing. So this is when you start to dominate markets when you start to understand this concept and that is if I can, if I could get a customer and spend two hundred thousand and get, and then make my two hundred dollar, I am sorry, spend two hundred dollars and make my two hundred dollars back. Yes I am losing money but if I have a back end in cell where I know that my technician, if I was in the carpet clean business and my technician went out there that he would sell that person in a quarterly or twice a year cleaning program and then we know on average based on experience with our other customers, they are similar to this customer that were probably going to end up selling them cleaning out their air conditioning * and were probably going to get a couple of emergency calls because this is a fluid client that bursts in parties and has a dog that knows going to pee on the carpet, you starting learning your business and * where you can sell them stuff
Very good point
So yeah
This is right, you apply to most service businesses as well
Yeah and it is a strategy to dominate you. if you can outspend your competition then you know the math, you can like you can kill everybody because very few people understand this and very few people will do this so if you can go in and outspend all your competition to get the business. If you can cash flow, you have the financial resources to be able to afford them to loose money, maybe on a client for a couple of months, may be on client from the first six months but knowing the life time value that I going to loose two hundred bucks for six months on every client that comes in but in the long term I am going to make five thousand bucks or I am going to make three thousand bucks. When you understand that math it is amazing.
Excellent point
Yeah
It is also one of these things that especially the bigger businesses that are better around for a while can really start to use to crush the competition
Absolutely you can dominate, you can actually dominate and this is why it is really, it really does tie back into, it really really ties back into budget. Why would you, when you understand math, why would you ever limit your budget. You have got to, I mean you got to be prudent, you can run yourself in to massive debt and put yourself out of business but these are things you think about so let’s just, so here, * we talk about this whole time in marketing. Just start it or keep it simple. This is what I just said is scary and if you are new in business you don’t have the mind to do this yet but this where you are going and so just start out simple to small marketing campaigns, we are going to talk about more on online offline stuff but just do small stuff tested, start to pay attention to how much money you make on clients, how long you think they are going to stay with you and as you start to learn the math then you can get more advanced, spend more, do bigger campaigns, take more risks and
It is like everything, start small prudent way
Yeah
Six months you look back in your, you are surprised that how far you have gone.
Yeah
I mean that is, that is how you make progress
Yeah
So what would be the, the worst mistake that you could make?
In marketing?
In trying to market with the idea that you need a budget? Or what is the worse?
I think that is probably got to be not doing it or stopping or giving up or quitting too soon. I see that all time. I am just, so few companies really spend more than a few thousand dollars, I think this is why groupon is so popular and people don’t understand the math on groupon and I am getting a little bit off * but it is a really good lesson
Yeah
The, when you are up selling, when you are groupon and you are selling your service at half off, not even half off because groupon, you don’t even get half at groupon, you know when you are essentially spending the money on marketing, the only difference is you are spending it, you are going into debt down the road, you are paying this out over time, you are loosing money over, you are loosing money on the back end and loosing on the front end and you don’t control who your groupon customer is. when you understand the math and you are willing to lose a little bit money on the front end. If you even have to loose, plenty businesses * they don’t even have to loose money upfront. I am just saying if you can’t afford to do that you dominate so you know, that is you don’t even have a budget that do things like living social groupon. They are still spending marketing dollars, they just *how they are spending the marketing dollars.
We need to have a video on gorupon and on living social and its own and whether or not they are effective or even a good idea.
It is a whole different, it is a whole different mathematical game and you are not picking your customers, they are picking you. that is a single biggest difference in my mind and so quitting too early and or not spending your money or trying something say didn’t work like doing SEO. I mean I have seen some of your client say start SEO they don’t get an immediate results and they are all scared. Understand, I totally understand that.
Are they trying to do themselves and do it wrong and so they if it doesn’t work or they have been burned by a incompetent
Yeah or you passed out a hundred door heading, you mailed out a thousand postcards and you messed up and you wrote the thing or you mailed it at the wrong time or you mailed it to the wrong people and it doesn’t work, you say, this doesn’t work and so you make a decision that marketing doesn’t work so for the rest of your business life, you businesses doomed to mediocrity because of one bad experience and a few hundred bucks that is really one of the biggest mistake and so I have to
Keep trying different thing
Yeah
When you fall of the market in the first time
So I would ask this simple question, do you really believe marketing does not work? And if you do, tell me which companies or which big companies don’t market? Or even probably come up with one name, like when it comes to mind * but actually I think * advertises * yeah but they don’t send me a post card
Invitations that we get
Yeah and they spend major and their marketing is spending a massive amounts of money on their commissions sales fee, that is their market. It is just the different kind of marketing so
Their service and return probably
It is great
The word of mouth which is
Different kind of marketing, everybody has a marketing budget but they are
Getting it in a different way
Right
It is going to their sales people and it is going to what it costs for them to receive return products
Right but they are still would be one of the only examples you can come up with where you don’t perceive they have a marketing budget but they do and then everybody else from your chilies to you McDonalds to your RBs to the sporting stores to what they, all the big companies spend massive massive money and I also love to say all small companies that become big you know they market it and everybody, see small companies are marketing. That is how they became big. It takes twenty five thirty years for small company to become big and do very little marketing and so you have to believe that
if you would be willing to spend the money to get what you want to get
yeah so I believe it works, learn the math and then keep testing and trying and forget the whole budget concept. You just spend what you can afford to spend and you can keep putting more and more money into marketing as you can afford to do it
exactly right. In to the things that are working, in trying new things
yeah exactly
very good
very good
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