Marketing Budgeting and Planning

During a contractor panel, Ben Stark was asked how much he budgeted for advertising and marketing. The contractors were interested because Ben built a large, prosperous company in a relatively short time. He employs over 30 people and has over 3500 service agreements.

Ben said his target was 6%, but laughed at the number. In 2008, he spent 8%. Last year he spent 9%.

He went on to explain that he bumped his advertising because of the economy. Good companies do that. They spend more on marketing during times when it's harder to find customers, not less. To retrench is to spiral down.

Ben noted that he's spent a much higher percentage than today. When he was starting out, marketing consumed 14% of his sales.

Steve McKee, president of McKee Wallwork Cleveland Advertising, which helps stalled companies kick sales to a higher level, is the author of "When Growth Stalls." Writing in BusinessWeek, McKee noted:

If you're in a services business, you might want to bump your starting point higher than 5%. For example, like most professional services firms, my company is more margin-oriented than volume-oriented, so fueling its growth requires that we spend a higher percentage of our revenues. Last year, our number was just over 8%, and I've seen companies spend upwards of 15% when warranted—especially young companies that need to invest to build their brand.

It sounds like Ben knows what he's doing (no surprise for those familiar with Ben or his company). Of course the budget will vary based on the nature of the company. McKee explains:

Volume-driven companies tend to spend a tiny percentage of sales on marketing, in part because their large revenues enable small contributions to add up fast, and in part because of the margin pressures they face in having to compete with other high volume companies. By contrast, margin-driven companies tend to spend a larger percentage of sales on marketing: They have room in their margins to afford it, and they're often working from a smaller revenue base.

The bigger question might be, "How do you spend it?"

The Service Roundtable recommends breaking your marketing budget down into three general areas...

1. Customer acquisition

2. Customer retention

3. Increasing your average ticket

The first two, getting and keeping customers, are obvious. Increasing your average ticket? Actually, this can be one of the most important marketing efforts you will make. Increasing your average ticket means dropping more to the bottom line on every call.

You can increase your average ticket by marketing add-on products and services on service calls. The marketing investment might be limited to producing a series of flyers for distribution to the customer in the field. Or, you could produce a full-fledged DVD explaining the wonderful things you can do for the customer and ask the customer to play it during the diagnostic or repair.

You can increase your average ticket by using financing to lower the monthly payments for homeowners so they are able to spend more. Every addition gross profit dollar drops straight to the bottom line. The marketing investment might be to buy down the interest rate or to offer 12 months same as cash.

How much you allocate towards each of the three areas of focus depends on the nature and position of your company. If your company is established, with lots of loyal customers, you will probably spend more on retention than acquisition. If your company is in a growth mode, you will stress new customer acquistion. And everyone should try to increase the average sale.

What's your marketing budget for 2010? What percent will you spend on customer acquisition? On retention? On increasing your average ticket? How much per month?

You can build your own spreadsheet, allocating your budget by month, focus, and ultimately program. The result is a marketing calendar designed specifically for your company.

Shameless plug... The Service Roundtable recently created a Marketing Planning Wizard for HVAC and Plumbing that streamlines and simplifies the process, guiding people step-by-step. It comes with the standard $50 monthly membership. If you're a plumbing or air conditioning company, check it out. Or call Liz Patrick, toll free at 877.262.3341 and ask or a free tour.