Why You Need a Marketing Budget
Are you among the small home services contractors who insist they don’t need a marketing budget because they get all the work they can handle from word of mouth?
If so, chances are you are not tracking expenses as closely as you could or are not classifying them correctly. If you have printed your name and contact information on your work vehicles, the sign in front of your shop, the t-shirts and caps you wear to work, your business cards and the yard signs you ask customers to put in their lawns while you remodel their homes or pressure clean their vinyl siding, you are spending money on marketing.
These are all examples of advertising, and if you’re not tracking them, you can’t know what it’s costing you to generate the “word-of-mouth” leads that are sustaining your business. If you don’t know that, you can’t possibly know whether you’re wasting money on ineffective marketing nor which levers to pull to grow your sales.
Chances are you’re spending a lot more on marketing than you think.
In addition to those listed above, marketing expenses can include time spent and service purchases to produce any of the following:
- Company website: This includes web hosting and domain name registration fees and any other costs incurred designing, producing, securing and optimizing your website for search engines.
- Social media: This could include marketing automation tools (such as Buffer, Hootsuite and HubSpot) that you use to publish, promote and analyze response rates to content on Facebook, Pinterest or whichever other social media channels you use to promote your contracting business.
- Email marketing: This includes using Mailchimp, Constant Contact, Campaign Monitor and other software, platforms or tools to conduct and analyze the results of email campaigns.
- Advertising: This includes the cost of purchasing digital, print, television, radio, billboard and other ads.
- Creative: These are all fees paid to create or license content for use on your website, blog, social media or advertising and in other marketing collateral. This can include fees paid to photographers, writers, videographers, graphic designers and image banks, such as iStock, Shutterstock, Unsplash, etc.
- Event marketing: This includes exhibiting at local homes shows, festivals or other community events.
- Lead generation services: This includes sites like Houzz, HomeAdvisor and Porch, as well as companies that help generate customer reviews.
Without knowing what you are spending on the first six categories to produce leads, you can’t possibly know whether you are overpaying for email lists and other lead generation products and services, including Houzz, HomeAdvisor and Porch, notes Mike Stone in a blog post at MarkupandProfit.com.
Stone, a former contactor who has spent the last 20 years helping hundreds of contractors improve their businesses, urges his clients to focus their marketing budgets first on building and optimizing their own websites. This enables them to establish a baseline of what it costs them to generate leads in-house before outsourcing to a third party.
Contractors who spend three to five percent of annual sales on marketing can usually generate enough qualified leads to keep themselves busy, Stone says. Growing sales faster, however, generally requires spending substantially more than this “maintenance marketing” rate.
Upping the stakes for growth
Contractors with business plans that call for rapid growth often spend 12 to 15 percent of their gross sales on their marketing budget, particularly if they have been in business less than five years. Business owners who take such an aggressive approach need to decide how to adjust their prices and margins to accommodate such a big change in spending.
Before increasing your marketing budget to align with your business plan, however, it helps to know what it costs you to generate a lead and how many leads it takes to create a sale.
Take the example of a handyman who is getting burnt out working 70 hours a week to generate $125,000 a year in sales. Let’s say that, on average, he sells 40 jobs a month at $250 and converts one of every four leads into a sale. If he is spending $425 a month on items one through five in the list above, he knows it costs him about $2.65 per lead, or nearly 4.1 percent of sales, to maintain his current level of sales.
He can now estimate how much money he might need to spend on his marketing budget to triple sales so he can hire two people and spend more of his time growing the business. He is also in a much better position to evaluate whether he is getting his money’s worth from list vendors and other lead generation providers.
A marketing budget also makes it easier to analyze what’s working and what’s not so you can adjust your spending. It also encourages you to think holistically about marketing — for instance, how a change in spending on content affects what you need to spend on SEM.
Agencies that specialize in helping contractors market online generally recommend they set aside about half of their marketing budgets for online initiatives, according to the following allocation:
- 25 percent for online advertising: Paid search engine marketing (SEM), Google Ads, social media advertising, leader generation, email campaigns and anything else aimed at driving prospects to make contact.
- 5 percent for website: Web development, hosting, search engine optimization (SEO), security, etc.
- 5 percent for content: Copy, photos, graphics, videos and any other content you produce for your website and social media sites.
The remaining market dollars might be spent offline, according to the following allocation:
- 12-20 percent for signage: Vehicle wraps, company t-shirts, polos and caps, yard signs, youth league uniforms, etc.
- 5-8 percent for events: Fees for exhibiting at local home shows and festivals and/or sponsoring events by local community partners.
- 2-6 percent for printed collateral: Brochures, business cards, customer review forms, etc.
- 16 percent for miscellaneous: Market research; TV, radio or print advertising; sponsoring local youth leagues/teams; community sponsorships; etc.
- While these percentages will vary depending on your business, they provide a useful guideline for those creating their first marketing budgets. You may want to use this marketing budget template from SCORE to get started.