What's your budget?

As you know, I help a ton of small businesses, and whenever I ask that million-dollar question: “What is your marketing budget?” — a lot of them give me the same answer. They don’t have one. 

If you don’t have a marketing budget, you’re hurting your own business. Even in your personal life, you need to have a budget. You probably don’t go through your day-to-day life without having some sort of a budget — even if it’s not on paper, it’s in your mind. It’s no different with your business.

You need to budget your day-to-day business expenses, but you also need to budget your marketing. A marketing budget is absolutely essential to growth.

You need a marketing budget!

What's Your Marketing Budget?A lot of people rely on referals alone for their business growth. Well, in my opinion, that is not a sustainable model, and it’s not a scalable model. You can use some “growth-hacking” techniques to help stimulate referrals, to add in more revenue, but you need to have a marketing budget

And honestly, you should be paying those people who are sending you referrals. They’re taking a risk with you, and they should be compensated for that. It’s the fair thing to do. So, regardless of whether or not you’re getting referrals, you need to have some sort of a budget.

There are three types of budgets: aside from referrals, you also have an offline marketing budget, and you have an online marketing budget.

Your offline marketing budget could be your printed materials. It could be going to trade shows or networking events — anything that qualifies as an opportunity for you to market your business offline. And then you have online business marketing, which is basically what I do. 

So for this video, I really wanted to focus on your online marketing budget, and how you should be dividing that up.

Online marketing budget

There are a lot of things about online marketing that you need to understand. 

What's Your Marketing Budget?First, you’re going to have a branding campaign to help you stay top-of-mind and reach awareness. You can use email marketing: constantly sending emails. (And when I say “constantly,” I mean two or three times a week. You don’t want to bug them). 

There’s going to be a cost for that email marketing software. There’s going to be a cost for pay-per-click advertising. There’s going to be a cost for lead generation, and for SEO: links, articles, and content writing.

So, you need to understand how much money to put toward each of those different parts of your budget. To simplify it, I can give you some basic methodology.

The budgeting equation

Now, I understand that it won’t be the same for everybody, but this is a process I’ve developed over the years that has helped me understand what my clients’ marketing budget it should be. So, let’s jump into it! 

To have a great marketing budget for your business, it’s really important that you understand what a customer is worth to you. In order to understand that, you have to know what you’re charging that customer. 

For example, say your business is selling septic equipment. The average home is going to be 3 – 4 bedrooms. So, let’s say you charge $1000 per bedroom, selling septic equipment. Out of that, you’re probably going to have a 50% margin.

What's Your Marketing Budget?So: $1000 per bedroom, for a 3-bedroom house comes to $3000 — divided in half is $1500.

That is the actual value of that client, because the chances of them purchasing from you again are probably zero. Remember, you’re selling septic equipment, and septic systems don’t fail for a lifetime. So, in this example, the lifetime value of that client is $1500.

Now, if you’re going to have a marketing budget of 10% (which is typical), that’s $150. That’s what you’re going to be willing to spend, to acquire a new customer.

Here’s where it gets tricky: how many customers do you need in a month to pay your bills? If you needed to make $20,000 a month, and each customer brings in $1350 (minus the marketing budget), you need 14 sales every month. $150 x 14 = $2,100. That’s your monthly marketing budget!

If you want to be more aggressive, you can go with a 20% marketing budget. Now your customer acquisition cost is $300, and your total budget is going to be about $4,000. That is really aggressive.

With digital marketing and other industries where you can make passive income, the lifetime value is a lot higher. It’s not as limited. You’re not just getting one sale. So, depending on your business model this marketing budget can go up. But this is a great baseline. I always recommend spending no less than 10% to acquire new business.

A marketing budget = better growth

What's Your Marketing Budget?It’s very important that you have a marketing budget. It’s crucial to being able to grow and scale. 

Once you have those numbers dialed in, then it’s just filling in the equation: how much do I need to spend this month? You just do the math, and scale it up from there. 

And the beautiful part is: the more money you spend, the more attraction you get. That marketing cost gets cheaper, because you can start diversifying your money.

What matters most is that you set that benchmark. Tell yourself: “I’m going to spend at least $1000 a month, even on a bad month. And on a good month, I’m going to spend as much as I possibly can.”

That’s what I’ve got for you today! I know it’s pretty detailed, but it’s very important, so please share with a friend. Thank you guys for tuning in, and as always, keep looking up.