Gary Hennerberg's Four-part Series on Marketing Costs
HOW MUCH YOU SHOULD INVEST IN MARKETING
By Gary Hennerberg
Determining how much you should invest in marketing is a question you must address early in your planning cycle. Some companies allocate a percentage of sales to marketing. Depending upon your type of business, marketing may range from 15 percent to 30 percent of your sales.
A better way to determine your budget is to consider these simple steps:
- Assess the market universe. In other words, determine how many people are prospective customers. Let's assume there are 1 million people who are qualified prospects in your product market universe.
- Determine a reasonable penetration of the market. Is it reasonable to think 1 percent of those people might become customers? If so, that translates into 10,000 customers.
- How much will an average customer order from you? And are they likely to purchase once, or once every month? If every customer is worth $100 annually, that suggests they will generate $1 million in annual sales.
- How much are you willing to invest to generate $1 million in sales? For this example, we'll suggest 25 percent, which means $250,000 is your starting budget.
Your challenge will be how to translate that budget into the right place. It might be in direct mail, Web site, catalog, broadcast, FSI's, print, statement stuffers or other alternative media. Whatever you do, the money must have a return on its investment. Now that you've quantified a budget, you must go the next step and determine who much is a reasonable amount of money to spend to acquire a new customer. That will be your allowable marketing cost. Arriving at your allowable marketing cost is a vital benchmark you must set to understand if you've been successful or not.
Gary Hennerberg consults with companies to improve marketing performance. He specializes in planning, research, analysis, and forecasting, and can be reached at email@example.com or by telephone at 817-318-8100. His Web site is www.hennerberg.com.
Reinventing Direct is for the direct marketer seeking guidance in the evolving world of online marketing. Gary Hennerberg is a mind code marketing strategist, based on the template from his new book, "Crack the Customer Mind Code." He is recognized as a leading direct marketing consultant and copywriter. He weaves in how to identify a unique selling proposition to position, or reposition, products and services using online and offline marketing approaches, and copywriting sales techniques. He is sought-after for his integration of direct mail, catalogs, email marketing, websites, content marketing, search marketing, retargeting and more. His identification of USPs and copywriting for clients has resulted in sales increases of 15 percent, 35 percent, and even as high as 60 percent. Today he integrates both online and offline media strategies, and proven copywriting techniques, to get clients results. Email him or follow Gary on LinkedIn. Co-authoring this blog is Perry Alexander of ACM Initiatives. Follow Perry on LinkedIn.