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021 - How much do I need to budget for marketing?

Is there a guideline for how much money a vegan business should allocate to marketing? Maybe you’re planning a business and you want to know how much you need to budget each month for marketing costs. Or maybe you want to know what a reasonable percentage of your turnover would be to put back into generating sales? Surely there’s a recommended percentage that companies allocate to marketing?

The truth is, what each business needs to spend on acquiring new customers is wildly different. Would you launch a business if you had no idea how much it cost to make your product? No, of course not. So why would you launch a business without spending the same time working out how much it was actually going to cost you to get a customer?

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021 – How much do I need to budget for marketing?

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Full episode transcript

Hello and welcome to episode twenty-one of The Vegan Business Tribe Podcast with myself David Pannell, co-founder of Vegan Business Tribe.  If you have a vegan business, or are thinking of starting one, then Vegan Business Tribe is here to support and inspire you not just to build a vegan business, but to build a SUCCESSFUL vegan business.
 
And if you want to go beyond the podcast and connect with our community of like-minded vegan entrepreneurs then head over to Vegan Business Tribe .com where you can attend our online networking events, get support, study our vegan marketing course and just be part of a wonderful community of vegan business people. And we’re always really grateful to our members because they are the people who mean we can keep recording this podcast every week and putting out all our content and just generally doing everything we can to support vegan businesses.
 
And as part of that support, I was recently asked a REALLY interesting question.  And I LOVE those ‘interesting’ questions that I haven’t really answered before – the sort of questions that I can’t just send someone a link to an article we’ve written, because when someone asks me one of those questions in the back of my mind I’m thinking, ‘I should record a podcast on that!’.  And that’s why we’re here today, because the question was: “How much money should I be spending on my marketing?”.
 
Now, at first glance that seems like a really obvious question.  Maybe you’re planning a business and you want to know how much you need to budget each year for marketing costs.  Or maybe you want to know what a reasonable percentage of your turnover would be to be put back into your marketing, surely there’s a recommended percentage that companies allocate to marketing?  And as it turns out, yes there is.  I know because I Googled it.  The answer is 5-8% of your turnover should be put into marketing.  The Answer is ALSO 2-5% of your budget should go to marketing.  And would you know, the answer is also 20-30% of your turnover… I know, I know – that’s Google for you.  But it also goes to show – right at the start of this conversation – that the answer to that question depends on who you ask. And I would say that ANYONE who puts a blanket figure on how much you should be spending on promoting your business simply doesn’t understand marketing.
 
And the truth is, I have run 6 figure businesses where I have spent close to zero on marketing.  I have also been involved with companies that were spending ten-thousand pounds a month on Google Pay Per Click advertising to generate twenty-thousand pounds worth of sales each month.
 
And what that tells us is what you need to spend on marketing isn’t linked to your business’ turnover. What you spend should be based on one simple question – how much do you NEED to spend to generate the sales you NEED to be successful?  And this is where, especially if you’re new to business, that the excitement of being a vegan entrepreneur hits the reality of having to know your numbers.  And I’m really sorry, I wish I could just give a simple answer to this one like ‘you should plough 10% of what you make back into your marketing’ but that would be REALLY bad advice.  Because if you know the figures of your business inside out, and you have already proved a marketing strategy where you know that for every pound you put into your advertising, you get three pounds worth of business back, then, in that case, you should be putting every single penny you have spare into your marketing budget – or until you have generated as much business as you can handle.
 
And I’ve worked with businesses in that situation – I worked with an ethical bathroom company who had built such a good Google pay-per-click campaign, linked to such a good landing page, which in turn was linked to such a good customer consultation and sign-up process, that all they had to do was max out the budget on their pay-per-click campaign until the company’s order books were full for the next six months, and then turn it off again.
 
Easy right?  Well, what that story doesn’t tell you is the two and a half years that we spent getting that system working the way it did, or the 5 years before that the company spent developing its products and a really unique customer consultation system.  Or the money they spent testing other marketing like doing really expensive home-building shows and eco fairs. Or the local radio adverts that they couldn’t really tell if they worked or not.  And if you are sat down NOW, trying to put a figure in the column on your spreadsheet titled ‘marketing’, how do you put together a budget that would cover all that?
 
And that is the key thing I really want you to take away from this discussion today.  I’ve talked to people who have spent their retirement fund on setting up a business before it even launched.  They have sunk eye-watering amounts into developing tech systems and platforms before they have even got a single customer.  They have spent a lot of money on creating a company that is, in many respects, a bet.  And it can be heartbreaking, because the reality is until you actually get your product or your service into the hands of customers and see how they use it, how they connect with it and start getting feedback, it is just that – a bet. You are betting your savings, your maxed-out credit card or your old-age pension on a hunch that people will buy. The ONLY time you should invest money in a business is to scale-up something that you have ALREADY PROVEN is working – so that you can make it work bigger and better. If not, you are simply placing a bet on how you think customers are going to act.
 
So before you go off and have that bespoke tech platform built, have you tested the idea first using free tech like Slack or a Facebook group to PROVE that people actually want what you think they want?  Before you spend thousands of pounds buying manufacturing equipment so that you can make hundreds of units of your new product a day, have you already tried selling ten units first at your local vegan fair and got people’s feedback on why they bought it?  Again, only spend money to scale-up something that you have already proven is working, because I guarantee if you don’t – you would probably get just as good odds at making a return on your investment as taking that money and betting on the outcome of your team’s football match at the weekend. 
 
And this applies to both building your business and knowing how much money your advertising and marketing will cost you. The wonderful thing about the world we live in at the moment is everything is connected.  And you might hate this.  You might hate that companies can track what we do online and Facebook knows everything about us, from what we like, how we interact with the adverts we see, and which friends we like the best. But once you are on the other side of that fence, once you are trying to sell something rather than trying your best not to buy something, you will be very grateful for how connected everything is.  There’s a very famous quote from American businessman John Wanamaker who in the 1900s said “Half the money I spend on advertising is wasted; the trouble is I don’t know which half”. Had he been alive today, he’d have been able to tell exactly what marketing activity was driving his sales.  He would see exactly how many people were clicking on his adverts and buying from his store.  He’d have been able to see how many people stopped and watched his video as they scrolled through their social feed. He’d have been able to see how many people had read his email and what his conversation rate was and even better, he’d have been able to use this information to get rid of the half of his advertising that didn’t work.
 
When putting money into marketing you need to put ENOUGH money into it to get a result that you can learn from, but as technology gets smarter, the amount of advertising you need to do to see what is and isn’t working gets less every day.  If I’m testing a new Facebook advert, I make sure it’s linked up to both a Facebook tracking pixel and Google Analytics so that I can see – from both sides – how many people are clicking on the advert and then what those people go on to do once they are on a website.  And when I’m able to monitor that kind of information, I don’t need to spend hundreds of pounds and cross my fingers and hope it will work.  I can set a budget of £3 to £5 a day for a few days and then look at a report to see what is working.  And I know what you’re thinking, it’s all right me saying all this, I’ve worked in marketing, I’m digital-savvy so I know how to do all this technical stuff.  And I would say back to you – you have noticed that we’re living in the information age right?  If you can Google and follow the instructions to make aquafaba or oil-free humous, you can follow the instructions of how to set up a Facebook tracking pixel on your website so that you know if someone clicking on your advert goes on to buy your product.  In fact, trust me, it’s far easier than making aquafaba.  And it’s this, perhaps really mundane stuff, that makes the difference between successful businesses and those that spend a lot of time shooting in the dark and flitting from one marketing idea to the next without really knowing what’s working.  The wonderful thing about DIGITAL marketing especially is that it is quantifiable, BUT your first attempt will rarely work.
 
I said earlier, that if you are going to run a successful vegan business that you NEED to know your figures.  You need to know how much your product costs to make, or your service costs to deliver, how much profit you need to generate and how much you can afford to spend to get each new customer.  If you sell a physical product, then you might just work this out per unit you sell.  For example: if after you have included all your costs (from ingredients to packaging to distribution) your product costs you £5 to create.  You want to make 100% profit – so you sell your product for £12 because you know that on average you have to spend £2 on finding each new customer – and life is pretty good if that works out. But you might also know (because you know your customer inside out, especially how they buy) that actually each new customer doesn’t just buy from you once, that they buy on average 5 times from you over the next six months.  So in that case you could actually spend £10 on finding each new customer and make the same margins.  Knowing and understanding this is REALLY important.  Because the difference from being prepared to spend £2 per new customer to being prepared to spend £10 per new customer is huge.  And if you sell a product that costs a lot more money, then those numbers scale up with it.  They might go from being prepared to spend £20 for a new customer to £200 per customer, and that really starts to frame your marketing decisions and how much you are willing to spend.  But the reverse is also true – if you are not keeping a close eye on your marketing spend and it turns out that for every new product you sell you spent £10 – but you only actually make £7 profit then you’re in trouble.  Remember, there’s not really such a thing as breaking even on a product.  If something costs you £5 to make and you manage to sell it for £5 that is a LOSS in real terms. Because your business has bills to pay, time has been spent, websites have to be paid for, food has to be put on the table, and if you’re constantly selling your products at break-even then it’s not really a business yet – at the best, it’s a hobby.
 
Now, I don’t mean to be harsh there – because LOTS of successful businesses start off in someone’s spare room or a kitchen and many more do start off as a hobby or a sideline.  But I will come back to our Vegan Business Tribe mantra:  it’s not enough to just have a vegan business, you need to have a profitable and financially sustainable vegan business if you are going to make a difference.  If you are not generating a profit from what you do, you cannot keep doing what you do.  You cannot keep helping us move towards a vegan world if your business is not successful.
 
And this is why you REALLY need to know how much you’re spending on finding new customers and if it’s working or not.  Let’s do some more maths – yay!  Now, trust me, out of you and me: I hate maths more than you do.  Even if you absolutely recoil from anything to do with numbers, even if you can’t add two single-digit figures together without using a calculator, I still hate maths more than you do.  What I LOVE though is what being in control of your figures brings to your business, especially when working out if your marketing is working or not.
 
So for example – let’s say you are selling a consumer product (such as hand-made cruelty-free soap) and you are looking to launch an e-commerce shop on your website.  You started by selling it to your friends and family first so you know people like it, which led you to go do some local vegan and ethical fairs where people loved it there also.  Now, just to go off on a tangent for a second – if you’d gone to your local vegan fair and NO-ONE had bought it, then STOP.  Don’t say – “oh, well, let’s try spending loads on a website and putting hundreds of pounds into online ads instead!” No.  Again, remember what we said earlier – you only put money into scaling up something that you have ALREADY PROVED is working.  If you can’t sell something face to face to a stranger then you won’t be able to sell it online to them either.  You need to go back and find out why people aren’t buying: is it your product, is it your price, is it the fact that you’ve not convinced someone why they need it, that you’ve not worked out the right message that connects with your customer?  Work out the answers to these questions before you try and take it to a larger audience.
 
But let’s assume that you’ve already proven that people WILL buy your product so you want to go online to reach more of these people. And as part of you proving there’s an audience, you’ve already got to KNOW your audience, you’ve spoken to them, you know what kind of people they are.  And, you know that they are on Facebook because that’s where they tend to follow your company.  So you decide to try some Facebook adverts – but how much do you think is a good amount to spend?  £50?  £100  Maybe even put £500 into it and see what you get?   Well, again, good luck.  Putting that money on vegan football club Forrest Green Rovers winning their next match will probably give you better odds.  Before you decide on ANY budget amount, you should TEST first.  That £100 you were about to put onto a test Facebook advert to see what you get, could actually be a series of 5 tests at £20 a time from which you will learn hard data about what your money is getting you.  And this is something I do all the time with any marketing.
 
So for instance, if you set a £10 budget on your advert and Facebook tells you that 22 people clicked on the advert, then you know it’s costing you 45p per person you are sending to your website. This only gives you half the story though, because we also need to know if those people actually go on to spend money or get in touch with you – which is why I gave you a hard time earlier about having various different analytics set up on your site.  Using Facebook’s tracking pixel might then tell you that out of the 22 people who clicked on your Facebook advert, 3 people went on to buy.  So in this example, it would have cost you £3.33 per sale or new customer.  And if you already know your figures, you will be able to tell straight away if that’s a good deal for you or not.  If it is, then put up your budget and see if the results scale.  So if £10 got you 3 sales, does £30 get you 9?  If it does and that’s within your cost of sale budget, then you have hit marketing gold and you should put ALL THE MONEY YOU HAVE into the campaign for as long as it’s giving you the same results, or for as long as you can handle the orders.
 
The reality is though, you are really unlikely to get this right on your first attempt.  You might get people clicking on your advert, going to your website but find that none are becoming customers.  So pause the advert and change a parameter.  This might be changing your targeting (so for example aim it just at people where you know there’s a large vegan population, or change the age of the people you are showing it to) to see if DIFFERENT people clicking on your advert makes a difference.  Or you might change which page on your website people land on, send them direct to a product page or create a new page just for people coming from this advert – or change the messages on the page to give people more confidence to click on the buy button and then run your test again.  Or you might run a series of adverts at the same time, each with a different image to see which one people click on the most.  You might have run 5 different test campaigns using that £100 you were going to spend blindly and learnt really important information along the way.
 
Now, I’ve focussed mainly here on digital marketing – because as long as you put a little work in and perhaps move yourself out of your comfort zone to learn a few new technical skills, then digital is really measurable. It’s no longer the case of knowing that only half of your advertising is working but not knowing which half – you know exactly what is working because you can track someone clicking on an advert to a sale in a basket.  But even when you are doing real-world marketing, use the same test, monitor and tweak approach to all your marketing spend.  If you’re spending to take a stall at an event, set yourself goals for the event.  And that might NOT be just sales.  It might be the number of new people on your mailing list to build up your audience. It might be how many people you got to enter your competition in return for following you on Instagram.  Set yourself what we call KPIs or ‘Key Performance Indicators’ and measure the success of the event against them. Give people specific order codes to use so you can see how many people ordered from you after visiting your stand.  If you are a service business, make sure you tag each new contact you make as someone you met at that show.  Run a report six months later and see how many of those contacts became customers. If you have not done a trade show or fair before, try ones that cost you a couple of hundred pounds to have a stand at and evaluate the results against the goals you set.  And again, if they worked, and that investment met the goals you set, or ticked all your Key Performance Indicators, then you know that if you attend a show that costs a couple of thousand to have a stand at where you will reach a bigger and more targetted audience, you are likely to get even better returns.  What you shouldn’t do is attend your local vegan fair, get nothing out of it and then say “you know what, if I spent thousands of pounds on attending a huge expo instead that’ll work”.  It won’t.  You are scaling up zero, which will get you in exactly zero in return.  You know that saying about the definition of insanity is doing the same thing over and over again and expecting a different result?
 
And you can take the same approach for any non-digital or offline marketing.  If you run a radio advert on your local station, include a special offer code so you know if new customers come as a result of the advert.  Or pick a radio station in a specific region where you don’t have any customers and see if all of a sudden you start getting enquiries from that town or city.  Take the small quarter page advert first in a magazine before taking the back cover, or even ask if they will give you a discount on a test advert first and that you will book for six months if you get a certain amount of business from the trial. And as your business grows, so can your budgets, but you should never lose this start-up testing mentality no matter how established your business is.  When you are more established, it just means that you have the resources to REALLY scale up the things that work a lot quicker.  So for example, maybe your £500 worth of testing on a Google Pay Per Click campaign got some good results; if you have bigger budgets that means you can test if you get the same ratios when you put a thousand pounds into it.  That works, so you decide to spend a thousand pounds a day.  And that keeps working, so you decide to bring in some experts to optimise your adverts and landing page so that thousand pounds a day actually gets you twice as many results.  So you double the budget again to the point where you’re spending fifty thousand pounds on PPC a month and your business is growing like crazy and you’ve got a whole team of experts monitoring and running your pay per click to make sure it continues to deliver.  That’s what you should your bigger budget for – to scale up, really quickly, the things that you have proven work.  And I’ve been there at businesses when that has happened.  But again, it rarely happens on day one.
 
Test then scale what works. Test then scale what works. If it’s not working on small budgets, it’s probably not going to work on larger ones. Just because you have the money in the bank to spend, it doesn’t mean that you should.
 
So let’s come back to the original question to make sure we’ve actually answered it, because I know once I get going I can go off on all sorts of tangents and different directions.   So, how much should you ACTUALLY be spending on your marketing?  Well, the answer is both as little and as much as you can.  Now I know that sounds like a cop-out, but it’s not about the actual amount you spend, it’s about where and how you spend it.  If you are PLANNING your business right now and you are staring blankly at the empty column in your spreadsheet that you’ve set up for your marketing budget, then you’re setting out on a wing and a prayer.  Would you launch a business selling hand-made bicycles if you had no idea how much it cost to make one?  No, of course you wouldn’t. You’d have already bought all the parts, you’d have perfected making them and worked out how long they took and how much it costs.  So why would you launch a business without spending the same time working out how much it was actually going to cost you to get a customer? Because it might be that the cost of ACTUALLY finding a customer means the whole business idea just doesn’t work.  And I’ve met too many people who DIDN’T find that out until after they had launched or after they had sunk their life savings into a business idea.  They had worked out and tested EVERYTHING except how much it was going to cost to get customers.
 
There is NO excuse for not doing this, we live in such an amazing age that even with limited technical knowledge you can put up a one-page website and test getting people to it through some low-budget social advertising or pay per click.  I’ve known people set up e-commerce pages for products that don’t exist yet, just so that they can test how many people they can get to the page and how much it costs to get a conversion.  When someone clicks the ‘add to basket’ button, instead of adding the non-existent product to a basket it goes to a page apologising that it’s currently out of stock or not launched yet.  But monitoring how much each of these ‘sales intensions’ cost to generate gives them a good idea of how much they will need to spend on marketing.
 
So how much should you spend on your marketing?  Well, I would say – you should be telling me that.  Because you should have already tested it and know your figures. It might be 5% of your turnover. It might be nothing because your company already has momentum and word of mouth.  Or it might be that you plough 100% of your turnover every month back into marketing because you have PROVEN that doing that will give you 200% turnover the following month.  There is NO set figure and your marketing spend should not be linked to your turnover. Yes, big companies CAN spend more and on average do, but that’s only to scale up what they have already proven works or to test a new idea and then monitor it closely to see what they get.
 
One final point I think it’s worth covering also, is what if you don’t have ANY money for marketing?  Well, again, I’ve been there. Some businesses I’ve run and the only resources I had were my own two hands.  And this isn’t necessarily a problem, because especially when you have a small business, time and money are interchangeable. You might not have the budget to get a professional web designer to make you a website, so you swap that budget for your time because you are going to have to learn to go out and build one yourself.  You don’t have the money to bring in a Pay Per Click expert to work on your campaign (and we’ve got a couple of extremely good vegan PPC experts as members of Vegan Business Tribe that I can introduce you to!) but that just means you need to budget the time to learn the basics yourself.  Will the results of doing either of these things yourself be as good as if you paid a professional? Probably not. But – it will allow you to test and prove something using your TIME first, not your money. All money does is give you a shortcut. But if you’ve not yet proven something all that shortcut does is gets you to the wrong place quicker and you paid for the privilege. If you’ve got a few spare thousand to have a website developed, but after you’ve got that website online you find out that all the things you thought about how your customers would interact with your product were wrong, you still have to pay for that website. And you’ll have to pay again for website version two.  So sometimes, working out all this early stuff when you have to swap having a budget for your time – it isn’t a bad thing. Because it means when you DO have the money, you know you’re spending it in the right places.
 
OK, as always in these sessions, I like to wrap up by going over some of the main points of what we’ve just learned.  Because sometimes it’s that one take away point of advice that makes a real difference, so let’s run through them:
 
  1. There is no recommended per cent of your turnover that you should put aside for marketing.  There might be an ‘average’ that businesses spend on marketing, but that average should never be a goal.
  2. The ONLY time you should invest money in a business is to scale-up something that you have ALREADY PROVEN is working.  If not, you are simply placing a bet on how you think customers are going to act.
  3. It’s not the 1900s any more.  If you can Google and follow the instructions to make aquafaba, you can follow the instructions of how to set up a Facebook tracking pixel.
  4. You need to know not just your figures but your customers.  You need to know how much each new customer is likely to be worth to you beyond their original purchase so that you know how much it’s acceptable to spend on acquiring them.
  5. There’s no such thing as breaking even on a product.  With everything else considered, breaking even usually means you’re making a loss.
  6. DIGITAL marketing is quantifiable, BUT your first attempt will rarely work.  You need to test, tweak then test again.  And you can often do this with micro budgets.
  7. Even you are doing real-world marketing, use the same test and tweak approach to all your marketing spend.  Be that for attending events, taking out magazine adverts or even radio adverts. 
  8. You wouldn’t launch a business without finding out how much it costs to make your product, so why would you launch a business without working out how much it was actually going to cost you to get a customer?
  9. If you can, prove something using your TIME first, not your money. All money does is give you a shortcut. But if you’ve not yet proven something all that shortcut does is gets you to the wrong place quicker.
 
And that’s it.  So as always if you enjoy learning about this kind of stuff, then go take a look at the marketing course on The Vegan Business Tribe website, it’s part of our monthly membership and it’s written entirely from a vegan business point of view because sometimes all you need is a little bit of knowledge and advice with your business to make a difference.  Sometimes all you need is a bit of enthusiasm, support and positivity too – and if you head over to veganbusinesstribe.com then you’ll find plenty of that there too, especially at our online events.
 
So, thank you so much for your time today, I really appreciate you giving up your time to listen.  And if you want to help support our mission to help move the vegan business world forward, then please give this podcast a subscribe, or if your platform lets you leave a review then let other people know how useful you found it.  And if you go to the website you can even share episodes directly with any other vegan businesses that you think might find the information REALLY useful too.  Thank you for listening, and I will see you on the next one.

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