Pillars of Business Growth
There are five pillars that determine a business’s success:
The reason Marketing is high on the list is simple: in order for people to buy your product or service they have to know about it first. Marketing is the means for letting people know about it.
Every successful business does invest in marketing, even if they haven’t labeled it as such. For example, a retail storefront selling a high-in-demand product may get sufficient exposure simply by being located on Main Street. The owner may not have a ‘marketing’ budget at all. But we all know the higher cost of being on Main is worth it for them primarily because of the visibility it brings; and what is marketing if it’s not the investments we make to gain visibility? In this case the marketing is actually quite a large investment when you consider the real estate costs as part of it.
Just thinking about that storefront on Main makes you realize that marketing requirements are vastly different for every business, even similar businesses within the same industry. So how can you develop a budgetary estimate for your marketing? You need a marketing plan.
Judge your Market Handicap
One of the first factors in setting your marketing budget is to determine how plentiful your prospective buyers are. On the surface it may look like there’s a huge market for your product, but there are several factors down the line that can reduce your natural potential. As the diagram below demonstrates these factors act as a series of filters. Work your way from top to bottom to get an idea of your actual market potential.
Raw Market Size
How many people around you can be considered potential buyers? Is the buyer part of a specialized group, or every person on the street? They may be as easy to reach as putting a sign on the street, or so specialized that you need a worldwide SEO campaign to reach the rare birds who fit your target demographic.
How much pre-existing demand is there for your types of products or services? How proven is that? Is your target market already buying similar products or services? Your gut and familiarity with the industry can be useful tools to gauge this, but also do surveys and other available information data to prove it.
How many competitors are there in your geographic area competing for the same customers with similar products or services? If your market is saturated with competitors, you’ll have to spend more just to stand out from the crowd.
Are you brand new to the market? If you’re a manufacturer, are you already “in” with distributors? How many buyers will switch to you, based only on your pre-existing brand equity? If you grew up in this industry and know everyone already, you start with an advantage (if your reputation is good). If not, you will have to spend more just to get (brand) face time with them.
Customer Knowledge Gap
How hard is it to understand what your product is or does, or why it is better? Do people already know about your product concept or is it a new invention? The newer and more complicated your product concept is, the more money you will have to spend to educate people about its unique advantages through your marketing materials.
None of these factors is a showstopper in itself. It becomes obvious as you work down the chart, though, that the more handicaps you have, the more you’ll need to invest in marketing to squeeze a large enough audience of potential buyers out of the bottom.
To really put this chart to work, get as much actual data as you can rather than just relying on your gut for each step. In the end, if you get enough data from different sources you actually may be able to estimate your potential market within a range of numbers.
When you get these numbers, remember that this is your potential market, and not your sales. Those potential customers that still exist by the time you get to the bottom of this chart will become leads, if you have executed marketing to reach all of them. Then once you have produced leads with your marketing it is up to your sales people to actually close the sales (a topic for another article).
Define Your Business Goals
If your product is already in high demand and you’re the only show in town, then it would seem your success is already carved out for you. But what if you want to own not just your own town, but the entire nation? Or the world? Or what if you aren’t content to coast and want to future-proof your business against other competitors that might move in? Now you’re in a whole different ballgame. Your goals are a big factor in setting your marketing budget.
Ask yourself these questions:
How much revenue do I want to make this year?
How much do I have to sell in order to make that amount of revenue?
How far geographically will I have to reach to find that many sales?
Are there other non-revenue things I want to accomplish? How much revenue do I need to make in order to support this mission?
You should also plot these questions along a timeline, asking yourself how much you want to make five years from now, and working backwards, how much more you will have to make this year, next year, and the next to incrementally reach that 5-year goal. Now that you’ve assessed your market and you have defined your goals along a timeline, you have the makings of a strategic business plan, at least the things relevant to marketing.
It can be hard to set a marketing budget if you don’t have a strategic plan for the rest of your business. This can also be called a growth plan. After you write a strategic or growth plan, even a general one, now instead of guessing your marketing budget in a vacuum you will be able to set your marketing budget within a broader context.
Create a Marketing Plan
A marketing plan will outline the media channels you will use (for example, a website, SEO campaign, magazine ads, and public relations campaign). Within each channel it will give a general overview of what you need to accomplish with each of these channels, and then it will draw the relationships between these efforts and the overall picture. A nice thorough marketing plan may be plotted on the timeline right alongside your strategic growth plan.
Don’t expect to do this yourself unless your area of expertise happens to be marketing. To create a marketing plan you should hire a consultant. This person should have experience not just in building websites, graphic design, or other specialties, but also broad experience in all things marketing. This person should also have business experience, and ideally, experience within an industry similar to yours. Commonly this may be an independent Marketing Consultant or an Account Director at an agency.
Having gone through the steps above to outline your target market and business goals, you will be well-prepared to start working with your consultant. Your marketing consultant should ask you for this information, and more, so that he can work with you on your marketing plan accordingly. Alternatively your consultant can help you work through those prerequisite strategic growth planning steps. If he doesn’t ask you details about your strategic growth plan then perhaps he is more focused on execution of marketing projects and less on business planning, so you may want to find another consultant for this stage.
When you and your consultant have named several projects to make up your Marketing Plan, you will be in a position to get budgetary estimates. For each marketing project an estimate should come from someone who is a technical specialist in that area. Your marketing consultant most likely has connections to all of these specialists and will become a one-stop-shop. That is really the difference between working with freelance designers vs an agency or consultant – freelance designers are specialists who can do projects for you, but they need you to supply the plan. An agency or consultant can create the plan, and also usually has a network of resources to help you execute it as well. Since marketing is one of the main pillars of your business model you should consider working with a consultant at least to start with.
Your consultant should be able to get budgetary estimates for each marketing project without having to dive into complete details. You will want to have a relationship of trust and understanding with your marketing consultant or agency so they can give you budgetary ranges based on stated assumptions for each project, with the understanding that these costs may change depending upon what details unfold. You will get specific quotes later when it’s time to actually do the projects.
With a budgetary estimate for each project, you will be able to add up all the budgetary estimates. That number will be…drum roll please…your marketing budget.
It’s Not As Daunting as It Sounds!
This really isn’t all as daunting as it sounds. To make it simple, you may start right away by finding a marketing consultant. Depending upon the complexity of your business you may be able to hammer out your plans within a couple of meetings. If your consultant is a good one then he won’t recommend anything, including his own services, that is beyond what’s going to help your business within the limits of your budget. If your business and your goals are small then your marketing plan will be, too, so your consultant time and fees shouldn’t be overwhelming. What will become overwhelming is skipping the consultant and trying to engage with a lot of freelancers yourself. That is a recipe for a wasted marketing budget. It is true: a failure to plan is a plan to fail.
Setting a marketing budget can seem like a necessary evil at first. The great thing that comes out of it, though, is that you will develop a strategic growth plan and marketing plan along the way. This can blossom into a whole new way of developing your business. With the right planning you should actually see your revenue, and therefore your marketing budget, grow year after year.