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What % of gross should I be spending to capture new clients?

The question: How much should we spend annually on marketing?

Steve’s answer: 10% might be the right answer.
But be sure to evaluate a multitude of factors.

find new clientsHi Steve,

I read and enjoy your insights often via this Strategies for Success web site. So here is a quick and easy question for a guy like you.  What is a recommended average percentage that a business like ours should spend per year on marketing to our clients and getting new clients?

Here is a basic profile of our business:

  • – One truck
  • – Owner-operator is on the TM twice a week. One employee works three days per week.  All one-man crews.
  • – We did 700 jobs last year
  • – We have set a goal of doing the same number of jobs this year plus 100 more
  • – 17th year in business
  • – 3000+ customers

Thanks very much for your help.

Pondering in Philadelphia

Steve: Thanks for writing, Pondering.  However, I am not the financial guru for SFS.  (And by the way nothing in business planning and marketing is “quick and easy”!)  But on stuff like this I defer to my esteemed colleague Chuck Violand. Let’s see if Chuck has time to chime in back to both of us.  (If not I’ll hack my way through.) And by the way, sounds like you have a nice business!

Chuck: I’m happy to weigh in on your question, Pondering.  Based on your numbers it looks like you plan to increase your new clients by just shy of 15% this year. Pretty nice given the current economy! Based on this limited understanding of who you are and what your long term goals are I would suggest limiting your marketing expense to somewhere around 10% of sales.

But, all this brings out the consultant in me. So here are some questions I’d suggest you consider as you consider increasing your customer base:

1. Are you planning to also increase your share of your existing customers’ wallet? How much?  Would reaching out to your current clients help you reach your sales goal more easily and less expensively?

2. Regarding your new clients targets, will their demographics be similar to your current customer base? If so will this help you achieve your long term goals?

3. Will these new customers increase your overall profitability? As Steve has grown tired of hearing me say “Increased sales without increased profits is lunacy”.

So, there’s my two cents. I hope you find it helpful. Naturally, if you have any other questions don’t hesitate to contact me at cvioland@violand.com

Second round

Pondering Even More: Thanks so much for your reply, Chuck.  Let me try and answer your questions.  We are always looking to increase our per job/customer dollar amount average.  I’ll admit even after all these years it takes real discipline to routinely tell the customer about our additional services and as for our employee, well, he just won’t sell, regardless of the incentives I offer him!

Having said that, we’ve found that even “passively communicating” our list of extra services makes a huge difference to our bottom line.  If we offer three add-on’s between the time we book the job and say goodbye, almost every single person has us do at least one extra service.  I love this because everyone’s happy!  We make more money and our customers get their needs satisfied and are delighted with their home.

No truer words have been spoken than yours regarding profitability, Chuck.  It’s all that matters in business.  Approximately 65% of our gross sales were profit last year.  I think that’s good, right?  So, we will continue to try and find ways to minimize cost of doing business and maximize each customer experience both for them and us.

Thank you both again for listening and as always I appreciate your perspectives.

Steve: May I interject one thought in this dialogue, Pondering?  You already appear to have a comfortable lifestyle and what most cleaners would consider a fairly successful business.  Soooo … where do you want to go?  What is your Desired End Objective?  WHY are you considering this new (and fairly ambitious) marketing campaign?  Or more simply- what do you want to be when you “grow up”? 🙂

Remember the old counsel- “Begin with the end in mind?” You don’t have to answer me but at least as an introspective exercise I’d like you to meditate on the questions above to define “the end” you are trying to achieve.  (We’ll do a lot of this “business meditating” in your SFS seminar.)  And thanks so much for letting all of us at Jon-Don be your “Partners for Success”

Steve

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