The number often changes, but this is a question I get asked a lot! And rightly so. As business owners wanting to grow, we need to make sure that every dollar we spend, especially in the early days, is going to generate revenue.
But, at risk of sounding like a ‘fluffy’ marketer, the answer really is… it depends!
Here’s how and why…
1. Your age and stage makes a big difference
If you’re just starting out, your foundations are key. While you can do this on a shoestring budget (it doesn’t need to cost $50k!), the return on this is often not realised until years later when you’re ready to grow. And, unfortunately, this is not something you can directly associate causation to. Marketing is both an art and a science, and this stage is often more about the art than the science. But, it matters. Get the foundations right and your marketing will be a whole lot easier to execute and cheaper to scale in years to come.
By foundations, I mean spending time and money developing your Brand DNA – the strategy that will underpin all your future marketing activities. This includes defining your purpose and values, and getting crystal clear on your target market. It’s about deeply knowing your ideal customers and the positioning strategy you will employ to stand out. Then, it’s about developing value propositions, unique selling points and key messages that are consistently on-brand (that’s your unique voice) and that attract and appeal to your ideal customers. It also includes knowing the channels that they are most active in, the size of your market and the competitive landscape, to ensure you are sufficiently differentiated. Finally, it involves packaging all of this up into an appealing and unique visual identity – not based on what you like, but on the psychology of design and consumer behaviour.
If you’re playing the long-game in business, you can’t skip these steps. Rebrands are expensive, confusing to your customers and time consuming. Investing in your brand strategy first, sets the foundations for long-term growth.
2. Organic growth is your sandpit in the early days
With your foundations in place, you’re ready to go-to-market. Again, how much you spend here is dependent on your budget and business goals. Most of the small businesses I work with, start with organic media and DIY-it as much as they can to keep costs down. Having a clear channel and content strategy is key – without a clear plan, you’re just throwing spaghetti at the wall and hoping it’ll stick.
At this stage of business, I’ve discovered there’s a continuum between two types of business owners – one that jumps in and does allllll the marketing stuff, and the other too afraid to start and crippled by the fear of getting it wrong. Where do you sit?
The ones who succeed are the ones with the strategy and the plan that gives them the confidence to move forward. Strategically.
This is where the science starts to come in… Taking action it the early days – developing the content and distributing it via your owned channels (website, social media etc) – is about testing and learning. What’s working and what’s not?
How does your brand and offer stack up? Are you attracting the right people? Are you funnelling them from your audience building channels (eg: social media) into your conversion channels (eg: email and website)? Are they buying? Are they satisfied post-purchase, and repurchasing?
Google Analytics and in-platform analytical tools should give you what you need to answer all these questions. Measure and optimise to discover the ideal formula for your business (don’t buy someone elses!).
Again, this stage doesn’t need to cost $50k – it’s dependent on how much time you to test and learn yourself vs engaging the experts who should be able to get your organic efforts humming faster.
3. Organic success is your benchmark for future ROI
Once your organic efforts are delivering the type of conversion rates you’re happy with, you’re ready to scale. This is where the rubber really hits the road. Performance marketing is all about enhancing the rates you currently have, at scale, and is often managed through paid media.
But, you can’t get here without moving through points one and two above because without a proven model, there’s a lot of waste in paid media. It’s still a test and learn approach, so the better your organic conversions, the less risk you’re taking on.
When determining your expected return on investment, your organic results are your benchmarks. For example, knowing you have a 3% lead conversion on your website (3% of visitors exchange their details for a lead magnet) and after nurturing them through an automated nurture sequence, you also deliver a 5% sales conversion, you can work out what a realistic budget for paid search might be.
Let’s look at a very rudimentary example… If you paid for 100k reach (impressions) per month, you’d be driving over 4k more visitors to your website (according to an average google search click-through rate of 4.4%). A 3% conversion would build your email list by 132, and you’d have 6-7 new customers each month. Average costs per click (CPC) vary across keywords and industries, but across the board are $1-$2, so with an average CPC of $1.50, it’ll cost you $6,600 to acquire these customers. If your products or services have a lifetime value of more than $1k, you’ll be in the black – this is your break-even point. If the price of your product or service is north of this, let’s say $2,000, you’ll have doubled your money. If your pricing is below $1k, you’ll need to improve your organic conversion rates before you start investing in paid media.
If you put all of your $50k budget in this one channel (not recommended – see below!), at these rates and prices, you’d have $50k profit in just over 7 months. You’d also be learning more about your targeting and messaging. With AI also at play, you should expect to reduce your CPCs over time.
Now, obviously depending on what you do and your average sale price, these numbers will vary – if you’re a product-based business where volume is key, your impressions and likely, your conversion rates will start much higher. eCommerce businesses can skip some of the funnel and sell directly from the initial click-through – if 3% of the visitors purchased from the example above, you’d need to be averaging $50 per sale to break-even. The key is knowing your numbers and knowing when they are good enough to put spend behind your efforts.
Again, this is just one example and in reality, you will have an omni-channel approach, delivering new leads and customers from various marketing activities. Some channels will deliver better ROI than others, but the sum of all the parts is higher having this diversification.
Keep testing new things and learning from the results so that over time you’re more efficient with your budget and constantly improving your return on investment.
If you’d like more information on each of these business stages and where to get the biggest bang for your marketing bucks, The Marketing Collective offers a variety of services to suit all budgets. If you’re intrigued by some of the paid search numbers, check out our Masterclass on Advertising Readiness and we’ll send you an ROI calculator to test your own conversions. This and our other masterclasses can be found here.
And, if you just want to chat it through with me first, feel free to book some time here.