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How To (And How Not To) Allocate Your Marketing Budget

May 22, 2006 on 8:45 pm | In Internet Marketing |

In this recent post on the Small Business Branding Blog,?Yaro Starak relates the tale of how he blew $500 (a large proportion of his marketing budget) on an event sponsorship that seemed promising, yet produced zero results for his student editing and proofreading business, www.BetterEdit.com.

This scenario of a business blowing a large proportion of their available marketing budget on one “do-nothing” marketing activity is one that I’ve seen more than a few times.

In fact, several years ago I was working for a Japan-based direct marketing (mail order) company that marketed a best-selling skin care range. We made a deal with an importer in Hong Kong who wanted the exclusive licence to market the products in Hong Kong.

When I looked at our Hong Kong partner’s launch budget, alarm bells started to ring. Large sums of money had been allocated to high-profile image ads and an endorsement deal by a well-known local actress.

This runs totally against the mail order ethos of testing conservatively before committing large sums of money.

Sure enough, the launch went ahead and there was an initial sugar-rush of sales (albeit made at a considerable loss) followed by very poor follow-through sales.

Before long our partner had exhausted their whole marketing budget and were looking to purchase stock on consignment because they didn’t have the cash to pay in advance.

Moral of the story: Never commit a large proportion of your marketing budget on any untested marketing activity.

How to Launch a Business

To cite another example, a fellow with a startup business contacted me today to enquire about some marketing options. He had initially decided that as an initial step he would like to try a direct mailing, followed by online marketing once he gets some cash in the door.

We reviewed the figures to see how this could work. Here is the approximate costing of a 1,000 piece direct mailing….

  • List rental (setup $250 + $300 per 1,000 names) = $550
  • Postage = $500
  • Paper, Printing, Envelopes = $500
  • Professional copywriting = $600

Total cost: $2,150

Hmmmmm…this isn’t looking like such a cheap test after all for a micro-business with not a lot to spend up front.

Furthermore, I’ve seen a number of direct mailings like this crash and burn because the list was no good. An old, over-mailed list will kill your mailing dead, and there’s no way to know the quality of your list until you mail it.

All of a sudden, the “expensive” alternative of a internet marketing doesn’t look so expensive. For this type of business, my company can set up a website, write the professional sales copy and set up traffic-generation campaigns for a total investment of around $3,000.

Plus, we provide a money-back guarantee. In other words, if the website we set up doesn’t at least pay for itself within 6 months of going live, we refund any shortfall in cash (show me a list broker who’ll do that!).

What’s more, with online marketing, you get a second chance. Even if your initial results aren’t as positive as you’d like, there is plenty of opportunity to tweak your website in order to boost your results. With direct mail, you don’t get this second chance unless you spend the same amount of money again.

Don’t get me wrong - direct mail can be a great marketing tool. But as an initial do-or-die test, I’d normally advise against it, unless you really know what you’re doing.

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8 Comments »

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  1. We recently had a similar situation but with brochures. We were given sound advice that a tradeshow coming up in Hong Kong fitted perfectly with our target audience. We spent nearly $2,000 on translation and brochure production (roughly half our annual marketing budget) and the result was zero quality sales leads. Your advice is very sound!!

    Comment by Erin How — May 23, 2006 #

  2. Hi Erin - thanks for stopping by! Yes, trade shows in particular can be a sink-hole for cash. I’ve done quite a bit of international marketing and geewillikers it’s hard to get traction at trade shows, unless you’re selling the best thing since sliced bread.

    Certainly if you’re on a tight budget they’re a risky investment.

    A great marketing avenue for people on tight budgets are “host-beneficiary partneships”. I’ll shortly be publishing a newsletter about this topic. If it intersests you, why not sign up to the newsletter on my site so you can get it when it comes out?

    Bests,

    Will

    Comment by Will — May 24, 2006 #

  3. Will, what is your opinion on phonebooks? I have a few ads out and at least in my industry (computer support) they are not doing well so far. This could however be attributed to the heavy competition in my area.

    Comment by Carlos — June 10, 2006 #

  4. Hi Carlos - not to mince words, phonebooks are C-R-A-P. The prices that the Yellow Pages charges are horrendous, even as usage falls.

    In many (not all industries) the cost of a lead generated by the print YP is too high. However, in some industries the YP is still a sound investment. Here are a few ideas for getting the most out of the print YP…

    1. Test and track your response so you KNOW whether or not it’s working.

    2. Hire a good RESPONSE-ORIENTED copywriter to write your ad. A good copywriter will double or triple response.

    3. Sign up for Dick Larkin’s YP newsletter - it’s great! The address is http://www.YPCommando.com

    4. Think more about online search-based lead generation. If you do it right your cost per new customer acquisition should be about 10% of the YP.

    Hope this helps!

    Cheers

    Will

    Comment by Will — June 14, 2006 #

  5. Afraid you are right, Will. It will take a gun to my head to throw any more money away in phone books (and even then I may not do it!).

    Comment by Carlos — July 21, 2006 #

  6. Are there any rented lists that do get great results? (with acceptable copy of course)

    Comment by Phil de Fontenay — September 18, 2006 #

  7. I’ve worked with big corporates and marketing budget accountability is an unknown concept. However in small business it’s all about money back on $ invested.

    Comment by Stock Market Trading Software — September 19, 2006 #

  8. Hi Guys - welcome!

    Phil - yes, rented lists can get good results. The secret is to test small before expanding. Often this comes down to budget though. A larger small business can probably invest 5K to test a list and if it doesn’t work not be too worried, but the micro business owner might be more concerned. Also, “fresh” lists are MUCH more responsive than older lists.

    The ultimate is really the endorsed list - where you team up with another business and get them to endorse you to their list.

    And hello Mr Stock Market Trading Software (methinks someone is doing some SEO!). I couldn’t agree more with your comment. Big corporates that do a lot of above the line marketing tend to be scared of tracking ROI because it just might reveal that they were barking up the wrong tree after all (isn’t that the point though…so they can change course onto something that works???).

    I have an idea that even the big boys will get more ROI focussed as acquisition becomes more difficult and they HAVE to understand what’s working and what’s not.

    Bests,

    Will

    Comment by Will — September 19, 2006 #

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