One of the most challenging questions for entrepreneurs to answer is “how much and where should I spend on marketing?”
As businesses get started they tend to favor focusing their time and capital into improving the physical space the business will occupy, getting the latest and greatest technology to be ahead of the
competition, hiring more people than is probably necessary and over stocking on inventory.
Often times I will look at how a business owner’s plans to use their start-up capital, see nothing (or a tiny fraction) for marketing, and ask how they plan to bring people in to their establishment.
“Word of mouth! Facebook! Word of mouth!”
Those are the stock answers. While they can be incredibly important for many businesses, it’s rarely enough especially as you first start out.
The answers to the questions of how much to spend and where will be different for every company, every industry and every situation but in general you want to spend as much as you can early, and back it down over time into a more targeted approach.
The simpler answer is “how much.” There is no magic formula for determining how much you should be spending on advertising (though you can look at industry analysis to see what your competitors are spending, generally displayed as a percentage of annual revenue) but if you are running a young business, reinvesting your profits into building awareness is a fantastic use of capital.
Base your marketing spending on what you can afford, but make sure you are budgeting some funds annually to grow your customer base.
Ultimately however, the key to effectively growing your business is not just in how much you are spending, but how efficiently. Social media and word of mouth are alluring answers not only because they are free, but also because they can be incredibly effective and if done right, can be the most efficient marketing you’ll ever do.
However, it’s rarely the be all and end all, especially when you are trying to grow. In a few weeks I will dedicate a column to social media basics and another to effectively using word of mouth advertising but for now, let’s look at the traditional marketing.
No matter how you choose to market your business there are two things you should always remember: make it actionable and make it track-able.
By actionable I mean always include a call to action for your potential customers. “Call today for more info” “click here to contact us” “register now for 20% off” etc. Passive advertising meant to build brand awareness and brand loyalty is great when you are established but is less effective when growing from nothing.
In everything you do be it on the radio, in the newspaper, on a billboard or on the internet always include a call to action if you are trying to grow. Adding some sense of urgency by giving discounts, setting deadlines or making exclusive offers is a great way to increase the effectiveness of those calls to action.
Another way to make them more impactful is to make sure that what you are asking the customer to do is beneficial to them. If your call to action is “like us on Facebook” don’t expect great results.
While you should be soliciting those social media connections, it shouldn’t be the only actionable part of your messaging.
The second key is to make all of your marketing efforts track-able…and make sure you actually track the results!
As a growing business, it is very likely that your marketing budget is not unlimited.
Therefore efficiency is important. You need to have a very good sense of what is working and what isn’t working.
Don’t be afraid to kill what isn’t working. Remember, efficiency is key! As you get started, try a number of different avenues for reaching your audience.
Try the radio, try local papers, try regional papers, try web advertising, etc. and as you do make sure that you can track where new business is coming from so you know if any of them are successful.
If you are running an ad campaign in a number of different media outlets, make sure you have a way to tell if you are getting any business as a result.
The simplest way to do this is to ask! “Hey, how did you hear about us” is a great way to engage with your customers and solves the tracking problem for you…as long as you keep records of the responses!
You can also try using coupon codes or have a specific offer running on each form of media, then track which offer is getting the most interest.
After a few months (or weeks, depending on industry) analyze the results of the tracking. If the billboard generated no business, kill it. If the web advertising resulted in a spike, increase it. The only way to ensure you are marketing your business efficiently is to make sure you are tracking results.
Take a look at all of your promotions. Are they actionable? Are they track-able? If not, find a way to tweak them so they are.
It’s a simple way to make sure you are spending your limited marketing budget as effectively and efficiently as possible.
Eric Kranz is the Executive Director of the Dearborn County Chamber of Commerce. He previously worked as a small business consultant assisting business owners throughout Southeast Indiana. He holds a BS in business administration from Marquette University and an MBA from Boston University. Eric has lived in Dearborn County since 2009.