How Much Should I Spend On Marketing?

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How Much Should I Spend On Marketing?

When asked “How Much should I spend on marketing?” my answer is usually “It depends.”

When a business starts out, it has no income, and must spend some money on marketing. Let’s look at my latest book, the Easy Guide To Internet and Network Stuff. If we treat the book like a business it makes a good analogy. If you publish a book without marketing it, there is a 99.9997% chance no one will ever buy it. The same is true with starting a business without any marketing. Even a donut shop needs a sign everyone can read a block away. You need a marketing budget before you start your business and a marketing goal.

The Business of Books

For the example I’ll call the business of selling the book simply Books. All the same rules apply if you are building a pizza parlor, opening a jewelry store or a gym.

Before the Book’s business is started, I did research, paid for drawings, and a book cover. The next step was to have an editor go through the book and find the glaring errors. When you start a business it is a lot like this isn’t it. First you need to have an idea, then you need to write it down and show it to others to see if you are missing anything. This process is time consuming and can cost a bit of money.

Once the manuscript is complete, I need to decide if I want to self publish or try and find a publisher. Many publishers want a “marketing commitment” before looking at books like mine. This is sort of like trying to rent office space and the landlord wants proof that you can pay them for a year. Self publishing is a bit like working from home or “bootstrapping” a business.

In either case there is going to be a cost of time and money to market the book. For this book it was the self publishing route and bootstrap marketing. The first thing I did was the “free” stuff. Posting on facebook, instagram etc. When I set up Books, I expected that I would get four reposts, 10 likes and 1 sale from the “free” effort. I use that as a bellwether to see if I should spend more marketing the book. The first sale came within 15 minutes, so I started the marketing campaign.

The Marketing Budget

When a business has a long running history, the marketing budget is usually pretty close to industry norms. There are some outliers though. Some speaker companies for instance have marketing budgets in the 50% range. They also have a lot more profit in their product so losing 50% of the margin to marketing isn’t difficult. If you only have 2% margin like grocery store, losing half of that would make it nearly impossible to survive.

Simple rule, the higher your margin the larger your marketing budget. While not always true, it is a good way to start out in the right mindset.

The idea of a marketing budget is to spend some of the “profit” on maintaining current customers and some on getting new customers. I want people who buy Books to come back for Books 2 and 3. I also want to attract new customers. But how much do I budget before there are sales.

From the first business I have owned, all the way to books. I budget anywhere from 20-50% of the gross margin to marketing. For Books, my target number is 70%, but more on that in a minute. Because I prefer to bootstrap my businesses, I start with a “hustle number”. I want to sell x number of Books without spending any money. Next is the Launch phase. I will keep hustling and I will spend $x per customer.

The Value of a Sale

Figuring out the x value of a client is harder than you think. In this case because books is used as a leader to my main business, the value of a book sale could be $10 or more on a $10 book. Let me explain this thought process. If I sell 100 books at $10, and two of those people call and get a quote, then one signs a contract for blog services, I could have $2500 in margin for that year of blog services.

If my end game budget is 30%, that means that I am willing to spend 30% of the $2500 margin to get the new customer. That is $750. That means I would be willing to spend $750 plus the $250 profit from the books to sell 100 books. $1000 in marketing budget to sell 100 books. In a sense I am giving away the “Books” business to build the BG Marketing business.

Profit and Margin

Keep in mind the difference between gross margin and profit when determining the value of a client. Profit is the money left after all the bills are paid. A lot of new business owners get this wrong and it costs them. My goal with the book is to sell 5000 books this year. That puts it on the top of the Amazon best sellers list for the category. I want to make $1000 for my efforts. That is about 20 cents per book. The rest is the overhead for running Books, the business.

There are copyright fees, legal fees, tax filing fees, artist fees and even shipping fees for signed copies. All of this adds up, and then I need money for marketing too.

The Myth of Getting Rich With Books

The biggest problem I run into is business owners saying things like “I made 1 million last year” and yet they have no money. The gross margin on sales might have been $1 Million, but the profit, which is their income, might only be $50,000.

Recently I met a business owner who also released a book. He thought the income from the book was going to save his business. I didn’t set up Books to get rich. I set it up to build my main business. Tony Robbins doesn’t make money selling books. He sells books to sell seminars. Stephen King cranks out a novel a year to make the money he does. It is the only thing he does.

Marketing Budgets for Success.

If you start a business and have no money left for marketing, you are the marketing. You need to get out and hustle. I highly recommend that no matter what. Owners that hustle make it, owners that wait for customers don’t. 30% is a very common number for a marketing budget. This means that if I sell a book for $10, and it costs me $4, I will put $1.80 into marketing the book. For things like books and articles that are actually marketing pieces themselves, I spend closer to 70% on marketing.

The Easy Guide to Internet and Network Stuff might make the best seller list for it’s category this way, but it won’t make me rich selling Books.