0.25% to 0.4%
That’s the average marketing spend in the staffing industry.
Yup, 25 cents out of every $100 in sales.
Now to put that in perspective, most B2B companies typically spend 6% to 11% of their revenue on marketing…that’s 24 to 44 times MORE than staffing companies spend.
Even if you convert the staffing spend to a percentage of gross margin, it only comes out to 1% to 1.6% of gross margin that gets spent on marketing (assuming payroll costs are 75% of sales).
Do staffing companies really expect a $1 marketing investment to turn into $100 in sales?
What is the right amount to spend on marketing?
Yeah, that’s a trick question.
There is no such thing as a “right amount to spend on marketing.”
Let me say that again…there is no such thing as a right amount to spend on marketing.
Your investment will depend on:
- Your specialization
- The maturity of your company
- Your growth goals
- The level of competition you face
- Your growth strategy
- The effectiveness of your offers
- The efficiency of your sales process
When it comes to budgeting for marketing spend, it makes no sense to set a percentage of revenue for your marketing budget.
Sure, you can calculate what you actually spent on marketing as percent of sales…after you invested in marketing, but for your budgeting, the “percent of sales” method is the polar opposite of a best practice. So, how should you budget for marketing?
This morning, I was out for a walk listening to Brad Weimert and Rohan Sheth on the Beyond a Million podcast.
Rohan is a total wizard in paid advertising and social marketing. I learned a ton during my 45-minute stroll. But one thing really stood out:
The right amount to spend on marketing is WHATEVER you are willing to spend to get a new client.
To figure this out, you only need two pieces of data:
- What is a new customer worth?
- How much would I spend to get that revenue?
That’s it.
What is a customer really worth?
That’s the million-dollar question…or maybe the $100 million dollar question.
And when I ask our clients what a new customer is worth, the answer I most often get is “it depends.”
Well, of course it depends, but on average, you know how much a new customer is worth.
Step one: What were your sales last year?
Step two: How many customers did you bill?
Divide step one by step two and you have your average annual customer revenue.
But, to truly understand the value of a new client, you need to look at LTV or Lifetime Customer Value.
That requires just one more question: On average, how many years does a client stick around?
Multiply the average annual customer revenue by the number of years you typically retain a client, and you know your average LTV.
Here’s an example of the math:
Let’s say you did $10 million in sales last year, and you billed 250 clients.
$10M ÷ 250 = $40,000 per client
And let’s say that your average client sticks with you for four years.
4 x $40,000 = $160,000 in revenue
And if your payroll is 75% of your revenue, then one new client, on average, is worth $40,000 in gross margin.
How much would you spend to get $40,000 in new gross margin?
Is it just $100? (That’s 0.25% of $40K).
Budget for success!
If you want your marketing to make an impact, you have to be realistic about what marketing can achieve.
$100 will not get you $40K. $1,000 might. $10,000 almost definitely will.
I’m not saying that you need to set your marketing budget at 25% of your target gross margin. But you do want to look at your total cost of client acquisition (sales and marketing) and compare that with your business goals.
Is the investment you are planning to make realistic for the results you want to achieve?
Or as I wrote above, how much would you be willing to invest to get the results you want?
If you want to add $1M, $5M, $10M or more, what percentage of that amount would you spend on new business development?
That’s the best starting point for evaluating your marketing budget. |
