How do you determine what to spend on marketing when you need to boost sales efforts for growth?
Joaquin Erazo Jr., marketing vice president at Case Design/Remodeling, Bethesda, Md., uses a formula that relies on history as an indicator of future performance.
Say you're running a $1 million company with average jobs of $20,000. You want to grow to $1.5 million.
First ask yourself, What's my average closing rate?
Say you had 250 leads and 50 sales. That's a closing rate of 20%. Then ask, Do I feel project size could increase? Do I expect my average close rate to increase? History isn't the only indicator, and perhaps you're committed to improving your closing rate.
However, if everything stays the same, you'll need 25 more projects to reach your $1.5 million sales goal. Divide 75 by your close rate of 20%, and get 375. That's the number of total leads you'll need -- 50% more than the 250 you had -- to reach your sales goal.
Say you spent 3% of sales on marketing, or $120 per lead. With your new projection, using the same lead sources, you would need to spend $15,000 more than the $30,000 you were spending.
Erazo says the amount may not be that high if you examine your marketing mix to see where most leads come from. If you pinpoint your most effective sources, incremental increases in marketing to those areas may mean better results. You may also pull the plug on lead sources offering poor returns. "The goal is to make sure you are not overspending or underspending," Erazo says.
He recommends working through this process twice a year, once for planning, then once midyear. Breaking down 375 leads means you need 7.2 a week, and from that you establish close rates and sales projections. You can adjust for seasonal variations, and know just what you need to stay on track week after week.