In speaking with so many business owners every week, I tend to hear a lot of the same questions over and over. The one that comes up most frequently is in fact: "How much should I be spending on lead gen?" Now, what makes this so interesting, is that despite the fact that I speak with businesses of varying sizes, the answer is always the same:
Your lead gen "budget" should be determined by two simple things:
- Your goals as a company, and your ability to fulfill the projects you sell - and...
- What your competition is doing.
That's it. Your goals/capacity, coupled with the competitive landscape, equals your proposed marketing budget. Let's dig in just a bit more.
Ok, first - it seems obvious that your goals matter here - right? I mean, if you're a small business owner, closing in on retirement, and just want a stable business - you're lead gen strategy will be much different than if you're a young company looking to aggressively grow and become the dominant player in your space .
But, what's most important, for the businesses I work with, is their capacity. The last thing you want to do, is invest marketing budget into generating jobs you can't do (or do well), that will ultimately leave you short handed and over stressed. This also leads to dissatisfied customers and negative reviews, which can be damaging to a business. We definitely don't want that.
So, start by determining your capacity, and work your lead gen plan back from there.
In the audio, I give a detailed example for a paving company, to illustrate this point.
Now, the second factor that determines our required budget, is competition. Many businesses think that the ad platforms determine ad costs - but that's not really the case. Most ad platforms nowadays run on an auction based model - meaning that the advertisers (you and your competitors), determine ad costs. The ad platform charges only what the highest bidding advertisers agree to pay. So what does this mean to you?
Well, it means that as more advertisers enter a market, or as businesses are able to make more money per customer (by increasing the customer's lifetime value), ad costs will increase. I've covered this on previous episodes, so I won't go into too much detail here, but let's just agree, that in every market - ad costs increase over time, and eventually, there become only a handful of "strong" businesses who get the vast majority of the available customers each month. These are the businesses who can pay the most for a customer.
So you just need to be aware, that as competition increases in your market - your marketing budgets will need to be adjusted too. This can happen slowly - or all at once (like if a new franchise with proven marketing systems starts moving into your service area) - so you need to be constantly aware of what the competitive landscape look like in your market.
These are really the biggest factors to consider when trying to determine how much you should spend on lead gen. Sure, there are a hundred other micro-factors, but in reality - get super clear on, and monitor these things, and you'll have no trouble knowing that your marketing budget is on point.
