How much of your budget should go to marketing?

It’s a common question for small business owners – how much of your overall budget should you spend on your marketing? Founder of Shout PR, Elise Hendriksen, asked three members of the Entrepreneurs’ Organisation to share their wisdom …

From tabloids to TikTok, how, when and where marketing finds us has changed. Marketers estimate that the average person sees between 4,000 and 10,000 ads in a single day.

In a world full of brands vying for our attention, I spoke with three members of Entrepreneurs’ Organisation (EO) across different industries to ask how they cut through the noise.

Founder of KX Pilates – Aaron Smith
Founder and CEO of Step Change Marketing – Ashton Bishop
TEDx speaker, lawyer and entrepreneur – Jahan Kalantar

Here’s what a lawyer, marketer and fitness franchise founder have to say on finding customers and keeping them.

How much of your budget should go to marketing?

“When we think about marketing, it’s not a straight allocation,” explains Step Change Marketing founder, Ashton Bishop. “You’re allocating between branding (warming up a larger market in the future) and sales activation or conversion. The general ratio across businesses should be about 60/40, so that’s the way we allocate our spend.

“ROI tends to optimise about 10 per cent of net revenue, so as a rule of thumb I’d say 4-7 per cent to stand still, because if you’re not moving forwards you’re going backwards, especially if it’s a competitive market. Then, 7-13 per cent if you want to make a step-change, and somewhere around 10 per cent to optimise.

“Over time, there are different ratios,” Bishop adds. “For example, a startup should spend more on sales activation and less on branding. A B2B business should spend more on sales activation, because their journey is longer and the current thinking is that effective frequency (i.e. how often you speak to a potential prospect before they buy) is anywhere from 8-13 times.

“You want to spend as much on your marketing as you can, if it is generating a return and growing the business. That comes down to the quality of your reporting, the quality of your strategy, and how well your marketing can support your business outcomes.”

Lawyer Jahan Kalantar reveals,”Our marketing budget was initially 5-10 per cent and it was nowhere near enough. We are now moving forward to increase this spend because there is a clear and compelling connection between spend and results.”

And KX Pilates founder Aaron Smith says, “With KX Pilates being a franchise, all studios contribute 4 per cent of revenue to a national marketing fund that our marketing team manages, to promote the brand on a national level. This fund grows as our network grows. On top of this, we also recommended that each studio contributes an additional 2-4 per cent of revenue to local area marketing activity.”

How have your marketing efforts changed over time?

“We started our business in 2008-9, mid GFC, with no clients, no money and no idea – we were very much street level, trying to survive with our marketing,” says Bishop. “And what we realised is that when we’re competing with much larger brands and businesses, we needed to stand out. So, ‘Don’t tell me you’re funny, tell me a joke’ became our principle.

“We focused on thought leadership marketing, and the one thing that worked for us was something called ‘stump the strategist’ – where we would take any question on marketing, strategy or communications, put nine minutes on the clock and the audience would decide if we were stumped or passed. This really took off for us and we even ran it as a charity event – a 24-hour stump the strategist marathon with 123 questions answered. This formed a lot of our content, as we would tape it, share it online, email it to our audience, etc. As we grew to a nearly 40-person business with $5 million turnover, we started to spend money on different marketing techniques, everything from speaking events through to AdWords, LinkedIn and more.”

“Professional services like law are very much a people business and so a big part of our marketing efforts are about creating a personal relationship with the people that we serve,” Jahan Kalantar explains. “Understandably, with changes like COVID, many of our traditional marketing approaches just could not work. By creating content and providing it at zero cost to the consumer, I feel that I have been able to create little digital footprints of my identity and have them out in the universe, which has been very helpful in spreading awareness of the business.

“I believe in try fast and fail fast,” Kalantar adds. “Efforts into things like Clubhouse and writing long articles have shown me that it isn’t the quantity of the content, but the quality that really makes your marketing efforts shine.”

“We have made significant adjustments to the marketing activities, particularly our ads, in order to make them more strategic, targeted and ultimately more effective,” says Aaron Smith. “We’re also in the process of overhauling our direct marketing in order to offer more personalised and meaningful comms to maximise client value. As the business has grown, so has our resource to be able to invest into systems and people in order to be more sophisticated in all our business areas.

“We’re currently transitioning to a new CRM which will allow us to execute more personalised direct marketing through detailed client journey workflows. The process has been long and stringent to stress test the system and ensure it is robust before going live across our large network of locations and client lists.”

What have been the most effective marketing tools for your business?

“Our best cost-per-click (pun) ever is our clicking banner pens (a banner pulls out from the pen) – we always have these at conferences and events,” reveals Bishop. “The other thing that has worked for us is what we call the A3 discussion guide. People don’t read brochures, but they will in a B2B setting, especially when making a complex decision with multiple decision-makers. Having something like an A3 explainer to guide the decision-making process and to use as a discussion guide, helps people to get on the same page around how decision is made.

“For a while there, we were spending a lot on digital marketing and I wasn’t paying attention,” Bishop admits. “I’d get a 60-80 page report on our ‘brand archetypes’ marketing (helping brands find their tone of voice) and where people were clicking, so we would increase budget. When I finally looked closer at who was downloading the brand archetypes tool – it was other agencies and students who had assignments on marketing. So, we became market leaders on something that generated us zero new clients. We changed our reporting, getting it down to a two-page digital report – one being a balance sheet of our digital eco-system with all our assets and how they connect, the other being a digital profit and loss. So over the month, how are we growing, click-to-cash? What are people clicking on that delivers high value customers?”

“I have moved from traditional media to more social media,” says Kalantar. “The two-way communication that social media platforms like Tiktok and Instagram provide allow me to know what my customers are thinking, and give them information that is hyper-relevant to them.

“Short-form video has been an absolute game-changer. It has enabled me to provide insights and perspective on complex issues that might have otherwise stumped well-meaning people with confusion. I believe video is the future of marketing.”

“Our marketing is most effective when it is led by client insight, and less by business or other objectives,” Smith says. “Our lead generation predominately comes from our ‘intro offer’ (five classes for $60), which is high value and also structured to encourage multiple visits to maximise conversion – the client gets a good induction of the workout and its benefits, plus they form the beginnings of a healthy habit/routine. We promote this across multiple paid ad channels, predominantly digital.

“Secondary to this, our clients are our biggest advocates, and we leverage this via a friend referral incentive.

“Ultimately, our best marketing tool is our quality product (the workout) and the overall experience we deliver via our studios and our passionate studio staff,” he concludes. “This is what people keep coming back for, tell their friends about, and what sets us apart from other choices in the market.”

Key takeaways

While marketing looks different across every business, finding success ultimately comes from trial and error (and the willingness to explore new approaches) and paying close attention to the results.

My key takeaways:

Marketing is most effective when it is led by client insight.
Use reporting effectively to focus efforts on high quality leads that are converting, not just clicking and reading.
Try fast and fail fast; opting for quality content over quantity.

I’ll leave you with one last marketing nugget from Ashton:

“Marketing should have two speeds: Building the brand and activating sales. If you really want to grow your business in a profitable way, you must invest in brand; you must get beyond your current customer database and take a long-term view.”

Want more? Get our newsletter delivered straight to your inbox! Follow Kochie’s Business Builders on Facebook, Twitter, Instagram, and LinkedIn.