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Friday, July 24, 2009

How much should you spend on construction marketing -- and where?

If you think I will offer a simple and fast solution to the question posed in this thread's title, you will need to be patient, or truly believe that superficial answers can apply to all businesses, in all circumstances.

Nevertheless, I'll suggest some general guidelines here which may help you as you start framing your marketing budget (which you should co-ordinate with overall resources and capacities.)

(For this blog, I'm including "marketing" and "sales" expenses in the same rubric. You can be more specific in the allocations -- in which case, you would put the cost of lead generation and indirect supporting activities into "marketing" and the actual commission and direct sales salary costs into "sales". The challenge here is that I think the best salespeople are most effective if they think and act like marketers; in essence they need a marketing budget for themselves, as well as direct compensation/commission.)

As a rule, marketing expenses range from 5 to 25 per cent. The "five per cent" marketers have mature products/services in clearly defined niches, you aren't worried about growth, and you have a stable and solid business operation, generally selling high ticket, repeat purchases.

If you are fortunate to have a business, for example, providing maintenance and service for several large (and unrelated) organizations not all of which would suddenly be affected at the same time by an economic downturn, you could handle 5 per cent quite comfortably. This would pay for basic support, relevant association membership, and a little promotional activity to prime the pump.

As we go up the ladder, 25 per cent is near the high end. This is common for businesses with relatively high transaction costs, often selling intangibles, and where the unit cost is relatively small, at least in the business-to-business space. Yes, advertising-selling businesses fit in this category, which suggests one reason why it is challenging often to find real value when you purchase advertising; you need to pay the (very real and valid) overhead and operating costs of the organization selling the advertising, as well as its hard costs in actually delivering the service.

If marketing costs are higher than about 25 per cent, you are heading into scam territory. Here, the promotional and sales costs are so high that it is virtually impossible for the vendor to truly give value to you. Realistically, if there is no substance behind the business (in other words it is a scam), marketing costs can be 50 to 60 per cent or more of revenue, since the remainder just falls into the criminals' pockets!

Three other factors may influence your marketing budget:

  • Your growth vision or plans. In early goings, you will need to "spend" more on marketing than when you have a mature business. Of course, you most likely wont' have the money (and if some sugar daddy has large pools of capital available for you, I recommend you decline it -- you will burn and waste that money really quickly if you use it.) At this stage, marketing budgets should be in sweat rather than cash. "Pay" yourself a commission rather than a fixed salary, and find the business!
  • The economy may decline and you may need to spend more for less. This works generally if you have a solid marketing system and strategy, and rarely is effective if you've "never marketed" but are desperate for business. But if you have a regular plan, reliable advertising sources, and the like, you can manage your lead flow by increasing your budgets within your effective media. However, I also think you would be benefit by testing some alternatives because new media can often save money.
  • Your competition may be stepping up the fight in your space. You may have to respond to increased pressure on your 'mind share' because of competitive behaviour. I think you should be wary about knee-jerk reactions, however.
In the next posting, I'll offer some ideas about how you can allocate and spend your marketing budget.

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