How much should I spend or budget for marketing and advertising?

How much you budget and spend on marketing and advertising really depends on how much you want to grow and the capacity of labor you have. This statement assume that the marketing provides a return on investment (ROI). It is never a good idea to invest in marketing that does not produce a return that covers expenses. Every marketing channel has to at least cover all the costs plus provide you a profit. For an extreme example, if you pay $50 per lead and it takes you 2 leads to get a job, you just paid $100 for the job. Now lets say your average job brings you $200 in sales and your typical gross margin is 50%, then you pocket $100. However, you paid $100 in marketing expenses to get $100 in gross profit which means you broke-even. Breakeven is the absolute bare minimum threshold for marketing and advertising spend in the pest & wildlife control industry. You always want to have a return for your marketing investment and this return may heavily depend on your business model. Think of ways to increase your average job price by up-selling additional services that are a win-win between you & your customer, cross-selling other pest control subscription services, improve margins by buying supplies in bulk or utilizing lower cost labor, and leverage customer satisfaction to get more referral business from that customer you paid to acquire like the next door neighbor that has the same rodent problem.

In addition, you do not want to invest in marketing you cannot put to use. As an example, you may have 3 technicians in your fleet that are working 16 hour a day, 7 days a week, and they do not have any excess capacity to take on additional jobs. This is not the time to buy more advertising unless you are hiring an additional technician. If you find yourself passing on work and you want to grow your business, you should really consider hiring more staff or getting some form of supplemental labor. Also having staff to field the leads generated from marketing and adverting is critical. You do not want to go and pay for more leads when you do not have the resources to answer the phone and sell the jobs. Too many times have we had a new client that we send 100 additional calls a month to and they cannot answer the phone consistently because they are trying to do the work in the field and answer the phone. You must have the internal resource capacity to answer the phone, sell the jobs and do the work.

Now if you find your self in the position of excess labor capacity and willingness to grow your business, this is the time to invest more in advertising and marketing to generate more leads and customers. We regularly ask our clients how much sales we generate for them and how much they invest in marketing. Our clients typically tell us that they spent on average between 8-12% of their gross sales on marketing. Some spend as high as 30% and some as low as 2%. Again your gross margin pays a big difference here. If your gross margin is 70%, then spending 30% on marketing would mean your operating profit is still a healthy 40%. The typical gross margin we see for a pest or wildlife control company is between 60 and 40%, with a profit margin between 10-30%.

The U.S. Small Business Administration recommends (SBA): “As a general rule, small businesses with revenues less than $5 million should allocate 7-8 percent of their revenues to marketing.” However, the SBA assumes: “you have margins in the range of 10-12 percent (after you’ve covered your other expenses, including marketing). Typically, pest & wildlife control companies have operating profit margins of 20-40% which will allow for more investment in advertising and marketing.

In February 2018, the big 4 accounting firm Deloitte LLP, Duke University, and the American Marketing Association completed it’s semi-annual survey of 362 marketing professionals to determine how much average they spend on marketing. The survey indicated that consumer services business spend 18.9% of their total revenue on marketing, higher than the other industry. This is due to the higher profit margin related to professional services. As you can see, lower profit margin industries like manufacturing, mining, and retail spend under 5% of their revenues on marketing. This is because they do not have the profitability that consumer services do. The average marketing spend across all categories is 7.9%.

In summary, how much you spend on marketing is up to the profitability of your business, the growth you want, and . Our client mentioned before that is spending 30% on marketing was growing at 300% and going from $250,000 in sales the prior year to $750,000. This company was very focused on building a brand in their market, leverage their name to get more referral business in the following years, and be able to do larger commercial jobs. They were in the hyper growth phase of their business but was also able to generate 20% operating profit while doing it. On the other extreme, our client that only pays 2% of sales on marketing and advertising, is a large mature pest control company that is in a low competition market. Their business generates $2 million a year in sales and their annual sales growth is in the low single digits, around 2-5% a year. Their market share and saturation is very high, around 90%, with the only other competitor being a small one person pest control company. There is not much room for our client business to grow and a high investment in marketing does not make sense. Their spend in advertising and marketing is just to maintain relevance, and is more of a defensive play to keep other companies from grabbing market share or entering the market. If your business is very stable with high single digit sales growth, we recommend you keep your marketing and adverting spending budget between 8-12% of your gross sales. If you are looking to grow faster than this, you should consider investing more.

 

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