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Marketing costs v returns?

We are a micro company with turnover of less than ?100k. It has been suggested to us that we market our product heavily, which would involved outsourcing all our marketing. On the face of it, it sounds like an expensive option, but I can see that if we don't do some marketing, we won't be able to identifiy returns on investment. My question is whether we should be spending circa ?5k per month on marketing services or whether we should expect to be able to start marketing with a smaller spend - should it be an all or nothign approach?

11 Replies

Brent Laminack
2
0
Brent Laminack Entrepreneur
Principal at OpenFace Systems, Inc.
In many industries, cost of sales runs 15-30% of gross. A lot of startups get the B round of funding specifically to start marketing efforts. I don't know your niche, but there are a number of non-traditional marketing handbooks, each with their following such as "Duct-Tape Marketing", "Marketing without Advertising", "Guerrilla Marketing", "Microwave Marketing" etc. that are centered on small-shop, do-it-yourself, low-budget marketing. The trouble with many of these is they trade off money for time. They'll take time and may not generate the immediate response that a traditional marketing campaign can generate.
John Van Dinther
1
0
John Van Dinther Entrepreneur
Business Consultant
If you're going to spend $5k/mo., which may or may not be plausible, just make absolutely sure you stay very involved in the process. A marketing firm can very easily just view this as a license to throw words and pictures over the fence. If you need results, make those requirements clear, and make sure the marketers know HOW to get those results. It's hackneyed to say, but marketing is a relationship...not just a stream of content. It's easy to let outsourcing go on autopilot, and that'd be a waste of money.
Cristopher Lang
1
0
Cristopher Lang Advisor
MBA Candidate 2015 at UCLA Anderson School of Management
It will heavily depend on your product and your target market.

It is very different to do B2C marketing vs B2B for example. And for each, the marketing strategy will still depend on your product.

For example ifor you are selling a consumer product targeted to a niche, it could be an efficient strategy to do a direct marketing campaign, leveraging on partners that are already engaged with your target, using social media and direct emailing. In this case a small budget could work, highly targeted to your highest potential customers (always watching that you acquisition cost doesn't go above your CLV)

In the case of a product for mass consumption, you need to make a "splash" in order to build your sales pitch to distributors and retailers, to gain distribution and finally build momentum.

If your product is highly innovative or controversial, the best way to go would be to put a limited budget on PR and leverage on media (traditional and digital) as well as social networks and blogs.


If you provide more info on your company you'll surely receive better recommendations.
Sean Wilkins
1
0
Sean Wilkins Entrepreneur
Dir. Marketing Strategy, Acxiom Impact
Joe, If you're only clearing 100k, I wouldn't recommend spending 60k of that on an external partner. With an extra hour per day, you should realistically be able to accomplish several marketing tasks on your own or split with a partner. The key to remember at a smaller business size is that marketing can't be entirely passive, meaning you can't expect to put out a paid search campaign, or just do a little PR or social. You will see faster and more valuable results doing the leg work yourself and learning the basics to then better qualify and educate an external partner as you scale. A key area to focus on first is referrals and incremental business from current accounts. A simple email and phone outreach plan will likely provide several new leads for little to no out of pocket spend. Secondly, it looks like your only social media profile is LinkedIn right now. That's a good start, but I would recommend at least Facebook and Twitter as well. These are platforms where your buying will regularly visit. By leveraging content against like interests(hotel operations, safety, etc.) you are highly likely to cross paths and drive traffic back to your site. Bottom line is, don't spend money outside when you can do a ton of work for yourself with just a little time spent. Get creative and get over the hurdle to start for yourself.
Henry Gewanter, FCIB, FCIPR, FIDM, MCIM, FRSA
0
1
Managing Director, Positive Profile Limited
I agree with Sean that spending ?60k when your turnover is only ?100k (which means you're probably not even "clearing" that much) is quite a gamble. On the other hand, you're in a competitive market (online health & safety systems), so it's probably worth making a significant investment in building your brand.

I would, however, suggest you split the budget between PR and marketing - either by hiring a firm that can do both, or by insisting the 2 firms work closely together.

Good luck for the New Year!

Kind regards,
Henry
Mark Wing
2
0
Mark Wing Advisor
Client Engagement Director at Small Back Room
Before you spend any money on campaigns you will first need to develop a marketing strategy. Clarity around your business goals and objectives should be shaped during this process. Once completed you will have a 2-3 year plan to work with, which you can use to brief a retained PR or marketing agency. I imagine there will be several initial projects that will spin out from such a task (brand and product architecture, website and e-commerce, etc) to support any sales & marketing activity going forward. As always, you will go through a 'quick-wins' versus 'nice-to-have' exercise... and this will help to identify what you have the resources to deliver yourself and which projects you will need to buy in. Once you have done this you will be able to invite agencies to provide competitive tenders for individual projects and plan these into your year accordingly. You should then also be able to measure your ROI as each project gets implemented.
Mana Ionescu
3
0
Mana Ionescu Entrepreneur
President, Lightspan Digital: Digital Marketing Problem-Solver and Speaker
I agree with all the others that you need a strategy and plan and need to set accountability measures in place. But you should do that no matter what. However, to answer your question - yes, it is possible to spend too little. You have to find the sweet spot over which you'll see results. It's like the difference between just barely keeping the shop open (which you'll get with a small spend), vs spending more and having a bustling store. With option A you'll get 0 sales. With option B you'll get TBD returns. So you should either go with option B or not do it at all. To figure out how much you'll have to invest, work back from the goal. Using your existing marketing data points, build projections. For example - At our current website conversion rate, how many website visitors will we need to meet our web sales goal?. To get that number of visitors we'll need to apply [ a set of] strategies and get X traffic volume for each. It will cost x,y,z per strategy to get that volume of traffic. This is also a way to check if your sales goals are realistic. Here's a data example, because we see this with our clients all the time. Client comes in and says, "we want 100K likes on Facebook in 3 months." Of course, here we ask why etc etc and shoot this idea down. But for the sake of this math exercise, let's say they stick with this goal. The quickest way to get the "likes" that fast is to run Facebook ads. At an average of 20 cents per "like" (which we commonly see), they should expect to spend $20K. And that's how you work back from goals to projected spend. It's one of the most difficult exercises in marketing, but it's important to do.
Farzad Wafapoor
2
0
Farzad Wafapoor Entrepreneur
Video & Digital Media
Typically, marketing budgets are 5% of income.
I looked at your website and already identified a few issues:
* The website says that the system is for all industries. Focus on a niche market by identifying and securing your "beachhead". Don't target all industries, that will be expensive and not feasible. Your case study mentions hotels specifically, perhaps that would be your niche (if not already)

* Now that you have a niche, you can target your marketing strategy in that industry: trade shows, industry specific trade magazines, etc. This will automatically eliminate expensive and irrelevant spending such as Facebook or pop radio ads

* If you consider your business as a small business (5 people or less), try to hire just two marketing consultants: one for strategy and the other for execution/management.

Let me know if you need any further help or have questions.
David Piacitelli
0
0
David Piacitelli Entrepreneur
President, Top Line Systems, LLC., an Account Based Sales Firm Serving Manufacturing, Industrial and Technical firms.
Wow, some great suggestions provided! Hard to improve on anything said already, but easy to agree with some specifics. Based on our experience, it is always best to get the process rolling yourself. Marketing and selling at this stage of your growth are the same thing. If you get the process going yourself, you will be able to see the progression of your deals from start to finish. The process doesn't change as the numbers get bigger, so you will be teaching yourself now for better, clearer managing of the responsibilities later. As Mark and Mana point out, having a strategy for marketing (and sales) is the best way to guarantee money well spent in either category. If you've run a micro-version of both processes on your own first, it will be easier to know what you want and whether your direct hires or outsourced folks are getting it done correctly.
Henry Gewanter, FCIB, FCIPR, FIDM, MCIM, FRSA
0
1
Managing Director, Positive Profile Limited
Sorry to be pedantic, David, but marketing and selling are never the same things!
Kind regards,
Henry
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