How Much Should You Invest In Marketing To Grow Your Business?

As a business owner myself, I’m always asking myself how much should I invest in marketing to grow my agency? This is a question every serious business owner should ask themselves and then do their research (or continue reading this article) to come up with your monthly investment number?

There is lots of research out there by some big organizations that will be an eye-opener for you in regards to numbers like cost to acquire a customer, cost per lead, value of a new client (single transaction), and lifetime value. Knowing these numbers will arm you with all the information you need to take the steps towards growing your business and more importantly your revenues.

Small Business Association (SBA) Numbers

How much should you spend on marketing to grow your business

This was a screenshot taken right off a google search from the SMA (small business association). As you’ll see…the number is 7-8% of your gross annual revenues for marketing and advertising if you’re less than $5M.

This will be an eye-opener for you, but there is a reason why only 50% of small businesses survive past the 5-year mark. There is obviously a lot more factors than just marketing, but many startup businesses do not invest the appropriate amount early on to gain awareness and market share.

If you’re in a competitive market and your product or service is in the thousands of dollars, you may need to invest 10% of gross revenues or more to compete. I love the quote by Jeff Bezo’s of… “the business willing to invest the most to acquire a customer wins”. 

If you can’t wrap your mind around these numbers, having your own business might not be right for you.

Know Your Business Numbers

Some of the key numbers you should know and stay on top of are:

  • Cost per lead
  • Cost to acquire a new client/customer
  • Value of a client/customer (initial transaction)
  • Lifetime value of a client/customer
  • Attrition if applicable
  • Conversion percentage from lead to new client/customer

The above numbers should be the main ones to stay on top of on at least a quarterly basis, if not a monthly basis.

Entrepreneur Magazine

In an article regarding businesses investing in marketing there was a study of 500 small businesses.

Partnering with Bredin, a small business research agency, and Kabbage, a small business funding company surveyed 500 small businesses of varying ages, across different categories, to uncover the lessons businesses need to achieve faster, more dramatic growth. The results offer insights for younger, growing businesses handed down by more established companies.

A primary finding? Many of those older companies regret not investing more in marketing sooner. That makes sense: On average, marketing/advertising spend is companies’ smallest expense each year. However, marketing is a key investment for any business, and many wish they’d invested sooner. In fact, asked the number one aspect of their business they wished they’d been more knowledgeable about earlier, to prepare for greater growth, 28 percent said they wished they’d known more about marketing strategies and channels.

Specifically, the study found that, on average, marketing represents only 8 percent of total spend for companies from their first year in business to their 20th year, or longer. Yet in hindsight, the older companies surveyed said they wished they’d doubled, tripled or even quadrupled their marketing expenditure at every age of their business in order to see greater growth.

Botton Line is Return On Investment (ROI)

So with all these scary numbers you’re seeing and need to embrace, the upside is the ROI of your investment. If you do your due diligence and hire a digital marketing agency for your small business that is your partner and has your long-term growth in mind you can quickly get a 3:1 or more ROI on your investment, and be more comfortable scaling that to grow even fast and bigger.

What Does All This Mean?

As a business owner, to compete in today’s competitive environment you’ve got to invest the same amount or more than the top business in your sector. If you don’t, you need a cost-effective marketing strategy to implement that your competitors are not, otherwise, you will be left behind and be one of the businesses in that statistic that doesn’t make it past year 5.

Your Next Step

If you are a growth-minded business owner and realize you must invest in marketing to grow contact us today and founder Mike Pedersen with 19 years of digital marketing experience will share his computer screen with you on a call and give you tips and strategies to take your business to the next level.