The last seven days have been quite interesting, and fulfilling for me. In addition to the photography demo booth at MJSA Expo in New York City, I also presented three seminars/training classes, one of which was at MJSA this past Monday.
An interesting topic about marketing budgets and social media organically emerged during my training sessions last week, which I then added to my MJSA seminar at the last minute, and I want to share with you today.
On Wednesday last week, I presented my 2+ hour intensive course on blogging to 25 small business owners, and then on Saturday, I taught my introduction class on social media to a different group of small business owners. Attendees to both of those classes started asking about their marketing budgets and how to wisely allocate a portion of that budget to social media when they didn't have a reasonable way to track those results.
My answer is simply 2-3% of your yearly revenue. It doesn't matter if you consider it money flushed down the drain or if you are one of those people who says "I don't understand it, but I know it has to be done;" in my point of view, you should simply allocate 2-3% of your yearly revenue towards marketing tactics that can't be tracked.
That's it. Done. Now, would you like to know why?
A Little Background
Since September 2014, I've been giving back to my local community as a volunteer with SCORE. That's a U.S. Government funded organization that helps new entrepreneurs start a new business, or improve a struggling business. Through my local chapter, I help future entrepreneurs choose if they should form an LLC or C-Corp for their business, help them write a business plan, and help them through their first steps in creating their marketing.
When I joined SCORE, I expected to just share my experiences with a new generation of entrepreneurs; what I didn't expect was the access to new information that I would also gain, and how it would be useful to incorporate in my business, and then share with others, like you.
SCORE is a division of the U.S. Small Business Administration, and as such we have easy to find resources at our fingertips on a range of business topics that will help new businesses. I found the above 2-3% among some resources published by SBA, but I'm putting a different spin on it.
How to Allocate Your Marketing Budget
Many businesses struggle to figure out how much they should spend on their marketing. Instead of struggling, everyone could just follow the outline that the SBA has set for all U.S. businesses. According to them, small businesses should allocate different percentages of their yearly revenue for marketing depending on what you are trying to accomplish. Here's how those percentages break down:
2-3% - Customer top of mind awareness
3-5% - Allocation for start-ups younger than 3 years
7-8% - This is where all small businesses under $5M in sales should be
Up to 20% - Aggressive expansion of your business
When following these allocations, a $1 million company should be spending $20,000 just to maintain top of mind awareness within their current customer base. This brings up the topic of customer attrition that is a common topic of discussion when coaching new business owners through SCORE.
Attrition is when customers slowly forget about you, eventually leading to the loss of that customer. While attrition can happen because of a change of jobs, new driving patterns, or a loss of a job, it is also happens because you stopped reminding a customer that you were still there, and still in business.
Imagine a customer of yours who had been buying for you for 10 years. Perhaps a few years ago they lost their job and didn't have any disposable income, without which they stopped buying from you. Once they got back on their feet, they started to spend money on other things, like a new iPhone (you do know that jewelry buyers prefer iPhones, right?), a new TV, perhaps some new cloths. A little more time goes buy and now they are fixing their car and taking their first vacation in a few years.
Meanwhile, because you feel that offline advertising doesn't work anymore, you discontinue all your ads. The truth is that many jewelers have told me those ads "just don't work because customers don't respond anymore." In reality, most business don't know how to track those results. (Although I'm happy to report that there are several new jewelry designers who now know how to do that though; you guys know who you are, and it was my pleasure that you attended my MJSA seminar a few days ago.)
Well, I have some bad news for you. While that old customer of yours was buying their iPhone, TV, clothes, and traveling, they forgot all about you. Why? Because you stopped running ads to remind them. Simple things like a small billboard in your town, an ad in the local community newspaper, or even a simple post card to all your past customers would be just enough to tell them that you are still open for business and willing to help when they are ready.
Without those simple reminder ads, they will go searching Google for a local jeweler the next time they think about buying a jewelry gift. They might even be surprised to find you in Google's search results; that is, if you have made the efforts to make sure you are listed in Google correctly.
The SBA suggests that you need to allocate 2-3% of your yearly revenue to keeping those old customers. That 2-3% could be paid offline ads, or it could be the money you pay an agency, or it could be the money you spend on Facebook ads, or the money you spend on Google AdWords.
However, it could also be allocated towards the payroll you spend on the employee that manages your free social networking accounts... You know... those systems that are typically unmeasurable.
Dealing with Unmeasurable Results
If you are really against spending money on local advertising, then you can use that 2-3% of your marketing budget towards your social media activities instead. You'll probably find that most of your customers are on Facebook anyway and you can maintain their top of mind awareness through Facebook posts.
Unless you employ some method of UTM variable tracking on all your shared social links, most of the stuff you post to social media won't produce measurable results. For me, "measurable" is more than just the good feeling you get when you your Facebook page reaches 10,000 fans. I'd rather measure how many people clicked on my shared links, what they did on my website, and then track how much their ultimate sale value was.
As I said above, when allocating how your marketing budget is spent, don't spend more than 2-3% of it on a marketing effort that you can't track, like most social media efforts that you use to remind customers that you exist.
So from now on you should group all your advertising into measurable and unmeasurable activities. Assuming your marketing budget is in the 7-8% range, then it's okay to allocate 2-3% towards hiring a social media agency or the payroll for an internal employee who works on social media for you.
Lastly, I just want to remind you that "free is never free." The social networks are free to use, but even with the above point of view, using those free networks can cost you up to 3% of your yearly marketing budget when you use it correctly.