Episode 15 - Understanding Your Marketing Budget

Marketing is an important part of any business. It’s critical to building awareness of your brand. But deciding how much to spend on marketing can be a real challenge. Host Peter Reynolds and marketing consultant Damon Adachi unpack this complex topic.

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• 11:23 (Cont.) Episode 15 - Understanding Your Marketing Budget

Transcript

Peter Reynolds  00:04

Hi, I'm Peter Reynolds, and welcome to Pros and Conversations. The podcast that explores what it takes to be successful, whether you're from the world of business, science, or the arts. Marketing is a crucial part of any business. And it plays an important role in building your reputation and your brand. But deciding how much to spend on that marketing budget can be a real challenge, particularly at the beginning for entrepreneurs when budgets are tight. Today on Pros and Conversations, we're going to talk about the factors in determining that budget, and the most effective way to spend it to get the results that you're looking for. Because there's a lot of pitfalls. There are a lot of quicksand out there. Luckily though, we have someone to help us navigate those pitfalls. And he is the Magellan of marketing. Damon Adachi, and he joins us today. Hey Damon, how you doing?

Damon Adachi  00:59

Great, Peter, I am jazzed. It's in my wheelhouse topics, I'm excited. And I'm ready to be the Higgins to your Magnum P I today.

Peter Reynolds  01:06

Damon, maybe for the audience, we could start by doing a quick definition of the difference between sales and marketing, because I think they sometimes get confused. 

Damon Adachi  01:15

Yeah, they tend to be used synonymously, at least together. And they can be very much opposing in certain circumstances. Sales is really about your client relationship management, it's your face to face. And it's your assessing needs and being present for your client. Marketing is more about managing your brand. So your brand acts as your agent and your broker when you're not available to be face to face. So marketing is about managing that whole beast, making sure that it's on point and giving your salesforce opportunities to capitalize on that engagement. So it's a little less hands on, it's a little more about broadcasting. It's about messaging, and salesforce. In the perfect world will take that message and go to market directly to the client for face to face engagement.

Peter Reynolds  02:03

Yeah, cuz it gets your brand is you're representative when you're not there. And that's what marketing is all about. 

Damon Adachi  02:09

Exactly, yeah, it's establishing the value and kind of communicating what the experience will be like for the client without having the opportunity to talk to him directly. 

Peter Reynolds  02:19

So let's talk about the importance of marketing, and how we can determine the money that we spend on it. 

Damon Adachi  02:28

Okay, so I'm gonna stop you right there, because instead of saying spend, we're going think about it like investing, because that's what you're doing. You're investing in the growth of your company, when you put money into marketing, and kind of like any investment, it's hard to predict what the returns were going to be. And it's not exactly gambling, but there is a little bit of unknown, which makes it kind of a mystifying concept for a lot of people, right? It's like, if I spend a big chunk of money on this print ad, am I going to get returns of enough business to make it worthwhile. And there's no way to know that in advance, when you've never done it before, or where, you know, you're not really sure what the results are going to be. So we have to think about it like investing and that it's money well spent, when you know that it's put in the right way. So to answer the question of how much to invest, we have to sort of look at some factors that will determine what makes the most sense for your business. And that question can be kind of like, how long is a piece of string? So there's so many, so many factors involved, and every business is different. So the answers will be different every time. But there are some key things that we can look at to help you navigate, how much and where to invest in marketing. What are your experiences with investing in marketing? From For the Record Productions?

Damon Adachi  03:41

And probably a pretty big spend too. When you factor in the presence, the time you've spent, the materials you've developed and printed and handed out. It's not insignificant.

Damon Adachi  03:41

Well, it's interesting, because it absolutely is a challenge. In the beginning, budgets are small. And you really have to know where to put that money. And we've definitely made some big swings, and had some big misses, and also had some successes when I think about it. When we started the business, we were really focused on working with nonprofits. And there was a conference that was happening in Toronto, and it was non profit focused. And it essentially was a trade show for nonprofits and all the representatives from charities and associations would be there. Sounded perfect. We'd set up a booth, we talk about the work we do to fundraise and raise money and help them with their organizations and their advocacy. And we set up the booth. We were there. We got lots of interest, handed out lots of business cards, not one sale. 

Damon Adachi  04:53

No and we really thought that that one would be the big push and it never ended up resulting in anything. And then we tried your more traditional marketing, looking for nonprofit websites and directories and places. And that definitely helped us. Funny enough, we printed postcards. Now this is over 10 years ago, which, generally speaking now is sort of dead, printing postcards and sending them off randomly.

Damon Adachi  05:25

You say it like, you mean TV Guide doesn't exist anymore.

Damon Adachi  05:30

It is definitely the idea of printing a random postcard and hoping somebody gets it or it gets sent to the right person. Yeah, the direct marketing is, as they call direct mail. That is you know, is so 2000. And before 2000, probably Damon. 

Damon Adachi  05:49

Probably.  

Damon Adachi  05:49

We did get one person called us from it, and he has been a customer for 10 years. It just happened.  

Damon Adachi  05:57

That sounds a little bit. Sounds a little bit like my golf game. No, you made one great shot, and it convinces you that there's hope.

Peter Reynolds  06:03

Exactly, exactly. I think I think that's what's really interesting about the different types of marketing, I want to talk to you about that. With traditional marketing, print, and radio and television. That is a huge roll of the dice, we used to spend a lot of money to figure out whether or not it worked. Whereas with digital marketing, and this ability to advertise on Facebook, or Instagram or LinkedIn, you have the ability to try different markets, to send out, test balloons, as it were and see what works.

Damon Adachi  06:41

Right. So there's a bit of a danger in that for me and you're absolutely right, there's new options out there. And so much of it has immediate measurability, which is wonderful, you can see an acid test of what's working and what isn't. But I'm always hesitant to go with a route of throw a bunch of stuff at the wall and see what sticks. Right? You know, there are so many options out there for how you can market your business. And by dabbling in a lot of them, you're really limiting your chance for success in any of them. So like, let's use your perfect opportunity tradeshow as an example, one of my questions in the autopsy would be, what did you do as a pre show plan? What was your plan for being on place? And how were you engaging the people that you talked to? What was your plan for follow up? And you know, you ask that from most trade show participants and you get a blank stare. It's like, I thought it was magic beans, I thought we bought the beans, we planted them and it grew like what are you talking about? So even just trying different avenues in the digital sphere, might not really give you an accurate representation of what your success rate would be like, because you're just dipping your toe, and you're not really doing it with any intention or plan or objective. And that's not necessarily indicative of how well it could work for you. So we talked at the opening that there are a bunch of factors to think about when you're determining how much and where you're going to invest in marketing. One of the factors is what type of business are you? That can have a serious impact on your strategy. Because, there are three major types. One is like a transactional type of business where you're just churning out product, you're either hawking pizzas, or you're an exterminator, or something like that, where it's kind of a transactional sale, you need a lot of sales, you need a high volume at a low margin to make your business work. And then on the other end of the spectrum, you might be a relationship type sale, where you are a long term partner with your client, you're an investor, something like an accountant, where you know this person all year long, and they work for you all year long. And there's a big payoff for your business at the end of the year when you build them. But that's a long term relationship. And you don't need a lot of those clients, you need a handful. And in between, you might be the third type of business, which is kind of project based. So think of like house painter, you have a project might be $2,000 for a sale, which is a lot more than a pizza, but you're only going to get one or two of those sales out of every client over a three year span. So you know, you gotta keep nurturing those relationships, but you're not constantly in contact with them to keep it rolling. So those different models require different approaches to the market. So you know, maybe your digital ad makes sense for trying to get that one response. You know, that direct mail campaign might make sense. If you get one response, and you get one long term client turns into a lot of revenue. But you can't really sell pizzas with direct mail of that effectively, because you're spending so much and the return on the sale is so little. So you've got to  realize that if you're a very transactional based business, your spend is going to actually be higher to drive more sales. And on the other end of the spectrum at a relationship based business, your marketing spend, could be quite low, because you might be working strictly from referral and word of mouth and networking, which is not expensive. So you know, things you have to consider along the way for sure.

Female Voice  10:10

We hope you're enjoying this episode so far. Pros and Conversations is brought to you by For the Record Productions, providing video production services to corporate and nonprofit clients for over 20 years. To learn more about how we can help your business visit VideosThatMatter.ca. And by the Business Alliance, a professional peer group that helps you grow your business through networking, collaboration and sound advice. To learn more about how to become a member visit JoinTheAlliance.biz.

Peter Reynolds  10:41

I'm wondering also about the actual ad spent People talk about this 80/20 rule, where you know, sort of 20% is in the production of the of the marketing material and 80% is in the ad spend. And I'm wondering if based on what you're talking about, the type of business that you are, that number may change, because if I'm just trying to get the word out to as many people as possible, I may spend very little on the actual production of the ad when it comes to digital marketing, because I need to get it out there, I need to get a lot of them out there. Whereas if it's something where I'm looking for a longer term client, I might want to spend more in the production of the ad. So maybe it's closer to 60/40. Because you want that high production value, you want something that you've put a lot of thought and effort into.

Damon Adachi  11:38

Right. Okay, so to that, I hear what you're saying. And my feeling about that is you can't skimp on production no matter what. Right? Like, you've all flipped through a magazine and seen that one print ad where you're like, oh, god, somebody, you know, skimped on the marketing budget of this is a do it yourself PowerPoint job of an ad. It destroys your credibility, it destroys your reputation and your brand. So like, under no circumstance, this is coming from a graphic designer who's very biased, can you really shortcut the production value of your collateral and your media? Now in terms of taking whatever you spent on the design and multiplying it by five for the campaign? You know, there are certain set of circumstances where that makes sense. But it also depends on what your objective is for the campaign itself. So what are you looking to? Are you looking to get attraction by high exposure and lots of eyes? Are you looking for more of a conversion type campaign where you want clicks, you want a call to action to happen right now? And your campaign may be even further down the lifecycle of your client and being more of a retention mode, where you're saying, Hey, you bought this from us? Why don't you consider this as well. So you're trying to upsell. Now you don't really need as many eyes on it, because you're really talking to people that you've already done business with. And at the far end, where this is a client that's been around with you for a long time, you might actually be looking for referral from them, and not actually any business from them. You might be saying, if you can pass me one more company just like you to add into my family of clients, my revenue goes up 20%. Right. So another factor about how you figure out where the numbers make sense for your business? Depends on what point in the sales cycle you're really trying to maximize. If that makes any sense? 

Peter Reynolds  13:23

No, no, it does. And you can definitely see how sort of traditional there are there are rules to follow. There are sort of guidelines we've been talking about. And then because you're making that decision, both traditional and digital marketing, because sometimes my mind, like I'm thinking on the digital side, and I can see how you're thinking on sort of the print side, there is a different approach. When you're going digital or you're going traditional. 

Damon Adachi  13:50

There's so many reasons. Yeah, it's a different sphere entirely. And there's so many great advantages in the digital sphere. Like that direct mail postcard you talk about, reason why they're not very effective in a lot of cases is because you're hitting a person, when they're not even in the mode to be shopping. Right? It's thrown in front of them, it's tacked to their windshield wiper, it's shoved in their door jamb, whatever it is, right, it's in the junk mail. They're not in the mode to be sourcing products or services. Whereas online, a lot of times, it's like, I am actively the audience right now, I might be looking for something else, I might be looking for a video on how to market. But if I see that ad that says, hey, do you know you can get this right now? Your attention is already there and focused and you're already in the acquisition mode in that sense. And the click of a button is so easy, as opposed to the call to action of take this postcard pull your phone, scan the QR code, go to the website, fill out the form. It's just so much of that instant gratification mode that people are in today. The digital sphere is catering to that. So it's a revolution in marketing and that sense, right? So I hear what you're saying. 

Peter Reynolds  15:00

No, it's really interesting that you're saying that Damon, because I'm now thinking about it, the flyers that I get that come in the door, they're for things that I will purchase on a whim. So they come in and it's pizza. And I think, yeah, that sounds great. You know, I'll order a pizza tonight for the family. Something doesn't come in and I say, an accountant. Yeah, you know what, I need a new accountant. 

Damon Adachi  15:28

Well what about a real estate agent? Because they're the number one users of direct mail. 

Peter Reynolds  15:33

But it's interesting, because that is something where often you post that up on the fridge. You know, you put that up. I don't know why it seems to work for real estate agents, when based on what we're talking about, it shouldn't.

Damon Adachi  15:47

And while it's that a thing, where you need one shot to land on the green, to feel like it's working, right? How can you get away from that stroke that shakes off eight times out of nine, when that one shot landed on the green? I mean, no, honestly, though, if that one sale comes through for the agent, they're making 10s of 1000s of dollars, it covers the entire campaign. So they're playing the numbers, for sure. But most of us can't afford that kind of return. And, you know, there isn't that kind of value to each sale to actually justify a print campaign.

Peter Reynolds  16:21

Yeah, it was interesting, because I was watching a video where they were talking about choosing the type of digital marketing that you're doing and the platforms that you're advertising on. And they were saying that a lot of it has to do with the type of business that you have. For example, if you're selling parts for a drone, they mentioned. This is not something that people buy on a whim. This is more something that they're going to search on Google, and you want to be the first website that comes up. So your money should be going into that type of advertising to whether it's SEO to make sure that your website comes up first. However, if your business is making colorful broaches, or toys or things that you can take a really nice picture of. Those are things people buy on a whim. So putting your money into Instagram, and having you know, all your marketing focus, where they can see the picture and that pops up in their feed. And they're like, Ooh, that sounds that's really cute. I'm gonna buy that. So boy, it's complex, but almost feels like a game. Just trying to figure out what works, what doesn't, where to go?

Damon Adachi  17:34

Yeah, it's intimidating, because there's so much unknown, not only is it a whole new medium, but it's technology. And it's hard to understand. I've worked with expert, digital marketers, and it's a whole process of, get in front of them, then there's a retargeting phase, where they're sort of in the funnel, but they're just circling and now you're drawing them deeper into the funnel. Then they get hit with an email that says, hey, you know, I saw that you looked at this, would you like some more information, and it draws them deeper and deeper down the funnel, to the final purchasing experience. And some people skip right to the bottom, they just go, oh, I want it to click, you know, and others are like, Well, yeah, I didn't realize I needed that until I saw it. But now I'm interested. Now I want more information. What else is out there? And everything that you do on your computer can be tracked, and just where the mouse hovers over if certain things as you're surfing around social media is getting tracked. Everything that you do is providing information that can be used in digital marketing. So it's, it's a science, it's not a magic, right? It's really invested. And I strongly recommend services of a professional expert in that sphere, because you really have to be operating on a very technical level to be successful.

Peter Reynolds  18:52

So how do you convince a customer to put some of their money towards marketing, because honestly, this is a big challenge I have in the video production world. I'll be contacted by a client and they'll want to produce a video. And it can be a promotional video for a product. It can be a promotional video for their organization, an advocacy video, and they'll have X amount of money to spend. And I'll say to them, have you thought about putting any of that money towards marketing? And they'll tell me, No, you know, we just want to create the video. We'll worry about that later. So I ended up creating the video. It goes up on their website. And I think I've said this before, but a year later, there is exactly the same number of views of that video, as there are employees in the company. And because they haven't put any money into it, and it's like printing business cards, or printing flyers and leaving them on your desk. And a year later going back to the printer and saying I don't understand, your flyers aren't working, you know, or a graphic designer? You know, I would go back to you, Damon, I don't understand I spent all this money on your design services, they don't seem to be working. Well, Where did you put the flyers. Put the flyers?

Damon Adachi  20:18

What? People didn't come flocking to collect them?

Peter Reynolds  20:22

So there seems to be this disconnect where people just don't understand the need. And maybe it maybe it is because it seems like how long is a piece of string.

Damon Adachi  20:33

It's that and it's also what we talked about off the top, which is it's an investment and you need an investment strategy. And you need an investment advisor. So the person that's going to the trade show and hasn't thought about pre, during, and post plan, the person that says we need a video because everybody has a video or our competitor has a video, and they're powerful, we recognize that. They don't have a launch plan, they don't have a broadcast plan, they don't have a follow up plan, right, then have a call to action in invested. So the reason why it's so mystifying and it's and it's hard to answer the question of how much do I spend on marketing is because there are a million other questions involved, and you need an expert. So thank you for bringing up this point Peter, but talk to a marketing consultant and consider them your investment advisor. Because we can all go out and buy stocks. But you know, how do we ensure we're getting the right return, we're getting the best on our money investment. You might make a little bit but you could have made a lot more if you'd had the right advice in the right stocks. Same idea with marketing, you've got to really have a plan behind the investment. So that when you say, Alright, we're gonna make a video, how much does the video cost? The adviser or the consultant, the coach should say, well, there's the production costs, then there's the marketing costs, right? Then there's all these other things to consider. And if you're thinking, well, I could shoot this on my phone now on my own right, you're not really giving the benefit of all that expertise and advice. So it's a tough, your original question was how do you convince people to spend it's, it's letting them understand that it's not just creation of media, it's getting it to market, there's a whole go to market strategy behind all the great ideas that you develop to market your business. 

Peter Reynolds  22:09

That's great, Damon, I think you've given, as we often say, on this podcast, given us a lot to think about. And the takeaway for me is it's all about, you can have a plan, you really need more than a plan, you need a strategy. And you have to follow through on it for it to be successful.

Damon Adachi  22:30

Right. And that, I mean, that's the challenge of budgeting, because, let me ask you flat out. Time to be honest, do you have a marketing budget for your company?

Peter Reynolds  22:41

I do not, I don't have a consistent number that we look at every year. It really is throwing darts at a dartboard.

Damon Adachi  22:52

It's opportunity based, it's whatever comes along and you go, here's a chance to market your business. Here's what it costs and you go okay, I mean, sounds great, like lots of people are going to be there that I want to talk to let's do it. Versus saying, my plan is to reinvest 10% of my net profits into the business for next year. Where is that going to go? Who should that be targeted to? And really having that full strategy. So the budget is reliant on the strategy, it's not a magic number that you can say, spend 10% of your net profits, and you'll get 30% back, and you keep doing that year over year? And that's how you grow? It's just not that easy, right? 

Damon Adachi  23:30

Absolutely, absolutely. I mean, the the good thing on the digital side is that you can track it. You have that ability to look over the course of a year and see what you spent. And in that way, we have a strategy in the sense of we know what works and what doesn't, and we, you know, push more in one direction. But we could definitely do more. There's no question about it. And I think you're kicking my ass to... 

Damon Adachi  23:54

I don't have a marketing budget either. But no, that's got to be extremely common as you don't really have a marketing budget, you're just working in trying to you know, keep your brand moving forward and taking whatever opportunities come along. So don't feel bad, please. We're in this together.

Peter Reynolds  24:15

Yes. I'm glad we're in this together. Well, I think we've kind of covered you know, most of the subject and although we sort of covered a lot and yet the we just sort of hit the tip of the iceberg, I think with this subject, but I wanted to thank you so much for joining me again Damon. 

Damon Adachi  24:35

Oh, my pleasure. But I have one more point.  

Peter Reynolds  24:37

Absolutely. 

Damon Adachi  24:38

This moustache looks terrible. And I know it looks terrible, but it's in support of the Men's Health Awareness Month. And if you're a man like me, please go to movember.com and learn about men's health and talk to your doctor and save a life, hopefully your own and promote it as much as you can. That's my message today. 

Peter Reynolds  24:58

100% and we'll put that link down in the description. Yeah, don't worry Damon, my moustache has nothing to be proud of either, so don't worry. Again, we're in this together. Okay?  

Damon Adachi  25:10

Always, always. 

Peter Reynolds  25:11

Nothing to be ashamed of. Okay. Awesome. Well thank you very much. You've been listening to Pros and Conversations. If you've enjoyed this episode, please be sure to like and subscribe and leave a comment if you're watching on YouTube, or like and leave a comment on your favorite podcast directory. I'm Peter Reynolds, and we'll see you next time.