The Small Business Administration suggests that all small businesses should allocate 8-10% of their revenues toward a marketing and advertising budget. Despite this suggestion, I’d be hard-pressed to find a handful of small businesses in my hometown that actually stand by this rule. Those that do typically start cutting down on marketing at the first signs of an economic downturn (or a pandemic, apparently). 

However, cutting a marketing budget and expecting new sales is sort of like throttling your internet speed and expecting Netflix to stream your favorite show flawlessly (and in 4K!). The gap in understanding this comes not from the budget allocation percentage, but from not knowing the return on investment (ROI) of that marketing spend.

Most businesses can’t tell me, with any certainty, how much they spend on marketing and how much they get back on those expenditures. Many business owners pay out large sums of money to put an ad in the local paper or advertise on the big screen with the fleeting hope there might be a good lead that comes from “being around”.

Other times, this is due to the agency they have entrusted to run their marketing for them. Many agencies are stuck in the past, with the idea that marketing is just a cost of doing business to build your brand and so therefore – you must do it. 

Those days have long passed by. Businesses need data that shows how their website is pulling in new leads, how their social media campaigns are driving traffic or failing to make any traction, and to show which of their digital platforms is seeing the most return on their investment, so they can put more of their dollars into that medium.

Today’s entrepreneurs need to understand what their cost of acquisition is for a new customer. 

The issue for entrepreneurs is not that they don’t have a budget – it’s that they cannot justify the expense if they cannot see the return. As an entrepreneur, it would be difficult for me to spend $5,000 on “marketing”. But if I knew that spending $5,000 would bring in around $20,000 in NEW revenue – it would be difficult for me to NOT spend $5,000 on marketing.

Marketing service providers and agencies need to do a better job at providing data to their potential and current customers. Most small agencies skip this vital step in order to “focus on new sales”. The reality is those sales might be fleeting, billable hour based clients that never recognize the value of the service.

Look for the firm that started out with real industry data, defined marketing metrics, and a marketing stack to achieve these benchmarks. You can usually trust marketers that can show you and explain the data, and how it will help you.

To be clear – this doesn’t mean throwing out the meaningless statement: “We will double your new leads!”. It really means giving them accurate data based on their marketing strategy and spend.

The second part of the solution is solid understanding. If you are looking for a provider – demand that they show you the how and why of their proposal. Set the bar high. If you’re told that your Facebook Page likes will double, ensure you aren’t just paying for random followers. 

One company I worked with spent a large portion of their budget on increasing their page followers. They got them – but they never stopped to ask who these people were. Were they in the target market? Were they even in the same country? What resulted was a lot of lost cash, and very few engaged followers who were uninterested in the product.

We often measure marketing success on some arbitrary value metric such as social media followers and email list signups. We feel good when we see those numbers pop up and our marketing partners tout their success in increasing your list by 500%! But if that increase doesn’t result in increased open rates, did they really give you the value you wanted?

We cannot always demand that our marketing partners increase our sales. This is not their primary job in most cases. But many one-man shows and long-standing agencies will give you these easy “results” without giving you any value that leads to true growth. 

Don’t ask them for more followers. Ask them for improved engagement. 

Don’t ask them for sign-ups. Ask them for improved open and click rates.

Don’t ask for more content. Ask for content that converts.