“How much should I spend on marketing?” Most construction
business people ask me this question at some stage. Many small
company owners find working out how much to spend on marketing a
tricky exercise to calculate.
Generally, there are five ways to work out a marketing budget
for the year. Remember that these are marketing budgets, not
advertising budgets. Marketing covers everything you do in your
business that creates awareness, including such activities as
advertising, brochures, competitions, trade shows, demonstrations,
travel, direct mail, email campaigns, your website, and
1, No idea at all
Some service-based businesses don’t have any budgets. They
just advertise either when they feel that sales have slipped that
they need an extra project, or when they get duped into advertising
by some advertising salesperson (“Buy now, and we will give you 50%
extra free!”). Ever wondered why they offer you the freebies?
Usually, because it’s such a dumb time to advertise that all their
regular clients are holding back and the sales rep is
I see many construction businesses that are just too busy
during certain times of the year to think of advertising, and if
they did, it would be a waste as they would not be able to handle
the work anyway. Suddenly, however, sales fall (perhaps due to
seasonality), and then the business starts marketing. However, this
could be a waste of money as often you’re marketing at the wrong
time, or advertising to get instant sales, which is unlikely to
happen. So the problem is that the marketing money is spent during
slow times (this hurts) and that it is allocated to fix a problem
instead of creating new opportunities.
2. Whatever you can afford
Here you spend spare cash (yes, spare cash may exist!) on
marketing. So the marketing is dependent on cash flow. During the
good times, you market more, during the bad times you cut the
marketing. The danger here is that if the construction business
falls, and you cut marketing, then the situation is likely to
spiral out of control. How can you climb out of the situation when
there is no money for marketing?
3. The percentage of sales
This is a popular method. Typically, you work out at the start
of the year what percentage of sales you want to spend on
marketing. For example, if sales last year were $200,000 and you
decided to spend 5% of sales on marketing, then you’d have a budget
of $10,000 ($200,000 x 5%).
The problem with this method is that you may not need $10,000
worth of marketing to achieve your sales target. What if you can
only do so much? If $4,000 spent on marketing creates enough work
for you to be flat out, then the other $6,000 is just being wasted.
And what percentage should you use?
4. The 'whatever the
competition is doing' method
This is the cheat’s way. Find out what the competition is
doing and then spend a similar amount on similar promotions. This
approach has an obvious problem: what if the competition has been
using method number one—the ‘no idea’ method? For example, a
well-known plumber went into receivership after spending large
amounts of money on radio advertising. Now, if you had copied that
business, you might have found yourself down the gurgles as
Never think that the competition or the more substantial
companies to know what they are doing, as often they do not. I know
of many large construction companies that spend thousands of
dollars on wasted promotions. Just watch TV adverts every night to
spot the ads that represent a waste of money. Then again, copying
the competition is a poor strategy. It would be best if you always
strive to be one jump
ahead of the opposition.
5. The objective and task
Now, this is the one I
recommend. At the start of the year, select the targets you’ll be
aiming at over the next 12 months. Work out what you want from each
of these targets (such as 100 new clients, or each existing
customer to spend another $100, or an increase in the average
sale). Then specifically state what you want to do to achieve this,
estimating how much it will cost (common sense will give you
guidelines, for example, a small service-based business will not be
spending $100,000 on TV advertising).
Complete this exercise for
each of your targets, then add up all the costs, and this will be
your marketing budget for the year. Points to note
- Always have a cash reserve
for marketing, so you can take advantage of any opportunities that
may arise during the year. Remember, not only can you not predict
what may happen (for example, some action by your competitors), but
the whole point of being in a small business has the flexibility to
adapt to market forces.
- Your objectives must be
specific so that when you’ve reached them, you can choose to stop
any further marketing expenditure if you wish to remove any
wastage. Of course, you could continue and look for more growth.
The point is, you—not someone else—make that conscious decision to
spend your whole budget.
- Conduct a break-even
analysis. For example, if you’re spending $1,000 to get 50 new
customers to pay, on average, $50, then sales will be $2,500. Will
$2,500 in sales generate enough profit to cover the $1,000 spent on
- You may have several methods
that you have used in the past, which you know work. Fine, include
them in your plan.
- You may have to spend a
certain amount of money to keep your existing clients and maintain
market share - make sure this is in your program, and you review
the effectiveness of what you’ve always done.
Remember to monitor
Finally, always have a method of monitoring if your marketing is
working or not—otherwise, you’ll fall into the ‘no idea’ category
that far too many small business owners belong to. You can’t refine
and improve your marketing spend unless you measure the results
About The Author:
Sharie DeHart, QPA is the co-founder of Business
Consulting And Accounting in Lynnwood, Washington. She is the
leading expert in managing outsourced construction bookkeeping and
accounting services companies and cash management accounting for
small construction companies across the USA. She encourages
Contractors and Construction Company Owners to stay current on
their tax obligations and offers insights on how to manage the
remaining cash flow to operate and grow their construction company
sales and profits so they can put more money in the bank. Call
1-800-361-1770 or firstname.lastname@example.org