How much should your home service business spend on marketing?
How much should you spend on marketing?
There is data that needs to be referenced in order to answer that question.
What is your sales goal? How much is your average ticket? How often do you service your clients? What is your customer acquisition cost?
Let’s answer these questions and figure out how much you should spend on marketing!
How often do you service your customers?
First, the service frequency your company offers has to be determined.
A low frequency service, such as roofing, should have a 10% max CAC (Customer Acquisition Cost). A high frequency service, such as maid service, can have a 100% single job CAC.
According to this article from Forbes magazine, 5-10% of sales to maintain current revenues and as high as 20% if you are trying to grow.
What is your sales goal?
Figuring out your sales goal is step 1 in our process. Your sales goal must be realistic. I am not saying don’t push yourself but also don’t set yourself up for failure. Make sure that you will be able to support your sales goal with staff and equipment as you call your shot.
For our example we will use a sales goal of $1,000,000.
How much is your average ticket?
You probably already know how much your average service price is but in case you don’t we will figure it out together. Take the last 12 months sales and divide it by the number of work orders you completed in the last 12 months.
For example if your company did $500,000 in sales and you completed 500 work orders your average ticket is $1,000.
Repeat and Referral Customers.
You have to take into account how many repeat and how many referral customers you will have. Let’s say that you are planning to have 500 repeat and referral customers and you need 1,000 customers to hit your goal, that leaves a GAP of 500 new customers.
Cost per Lead.
Your cost per lead is how much you pay per lead, not per customer. You figure out this metric by taking the amount of revenue spent on sales and marketing efforts and divide it by the number of leads generated from them.
If you spend $1,000 on yard signs and get 100 leads from them, your cost per lead from those yard signs is $10.
Closing percentage is how many sales you close from your estimates given. If your salesperson goes out and gives 20 estimates a week and closes 10 deals from those leads, your closing percentage is 50%.
What is Your Customer Acquisition Cost?
Figuring out your CAC is vital to figuring out how much to spend on marketing.
Customer acquisition cost is figured out by taking the total revenue spent on sales & marketing and dividing it by the number of new customers attracted to your business.
So How Much Should You Spend on Marketing?
Let’s go back over our data that we have discovered to figure this out.
For our example we have a GAP of 500 new customers that we need to hit our sales goal of $1,000,000.
We know that our CAC is $400.
Take the number of new customers needed times your customer acquisition cost and the answer is your total marketing spend. For our example you would need to spend $200,000 to reach your sales goal.
Now I was just cranking out numbers for example’s sake, your numbers are going to be much different.
We dive deeper into this topic in our 3 part series on Building a Winning Marketing Calendar on our YouTube channel so make sure you check that out!