Question: Is there a guideline for my marketing budget as a percentage of total revenue if I’m not doing demand service?
Gary Elekes; Founder, EPC Training:
Well, I’d love to be able to give you a magic bullet or the one number that you could hang your hat on and it would work, but unfortunately marketing doesn’t work that way. So the questioner is not doing demand service, so I’m going to take that to mean we’re mostly doing installation, and that we’re targeting replacements as the primary philosophy.
So you’re probably going to wind up spending more money than the average company in terms of the KPI’s that we vetted in the trade, simply because if you’re going to do paid search, and you’re looking for a person or a consumer that is looking to buy a new system, chances are they’re going to click on multiple ads. So you’re probably going to have to spend some resources to be present and accounted for inside of that space. It’s a lucrative transaction on the replacement side, so given that framework everyone knows that. Wally knows that, Drew knows that, I know that. We’re in the same market; we’re probably fishing in the same pond. So when things are slow, you’re going to spend a lot more money per click or per lead. Or if you’re doing traditional advertising, even if you’re doing targeted direct mail, that’s going to be a higher number.
But I would also say that I’m ok with that, meaning that service is an expensive business. It does produce a lot of leads and lead turnovers and maintenance. So we love it for that reason. But without that expense from service, I have the opportunity to reduce my overhead exposure. I probably don’t need quite as many people, and my assets and my vehicles aren’t there.
I’m probably not worried about certain tools and training and compliance issues that are part of my overhead structure in the service business. So that does give me some additional liquidity to spend on a higher cost per lead, if you will.
So traditionally what we’ve seen is somewhere around 12-15% would be a number that you would say an installation-only company would spend. I’ve seen higher than that, but I think you’re gonna have to figure that’s going to be about what it’s going to take to compete effectively in the marketplace. The downside that you have by not having the service and the maintenance business – which is not necessarily part of the questioner’s question, but there are two sides to that knife – is that you’re not going to have the slow-season customer relationships to be able to leverage internally: email campaigns, drip campaigns, call center marketing, precision tune-up discussions. So you’re giving up the lead turnovers inside of that model.
So as long as you understand that’s one of the reasons why you’re going to have to spend money. The trade you get in favor of that is a lower overhead structure, probably more flexibility to turn off the spigot. So we have several clients in our digital agency who are absolutely in that model. And both models are successful, but they tend to spend quite a bit higher numbers comparatively than a company who has the service business.
One other comment I’d make on that is: The value of the company at transition is worth less in that particular model because there’s no way to prove to the buyer that there’s a repetitive or recurring revenue stream that creates profit, it’s based on the marketing model. So not that you want to do that, in terms of the questioner, but I think you also need to understand that that’s a downstream issue that you need to think about.