3 Ways to Determine Exactly What to Spend On Your Marketing

This article originally appeared in Peter Kozodoy's Inc. column.

As a marketing strategist, I'm always baffled by the amount of misinformation floating around out in the advertising world. One of the culprits I see the most is about the exact amount of money that a business should be spending on its sales and marketing efforts.

To solve this, most companies look around at their competitors and do what they're doing. For that matter, that seems to be a core strategy for the vast majority of companies out there even outside of the sales and marketing departments.

In doing so, firms end up with some magical percent of sales to spend on AdWords, or do a logistic regression that gives them the "right" balance of traditional versus digital advertising.

Or worse -- companies just throw money out the window and hope that some of it floats back to them in the form of new customers.

You can probably tell by now that I'm a fan of none of those techniques. So to get at the budget question, let's first define marketing as the process by which you reach and convert customers faster and more efficiently than your competitors.

By this definition, you can't go by industry standards if you hope to have a successful sales and marketing campaign. Nor can you solve your new business challenges with a one-and-done solution.

Instead, if you want to develop the proper marketing budget, here's a system you can follow to get you to the ideal budget number:

1. Do an independent assessment of where your target customers are and how they behave.

It would be tempting to start with, assess your industry's best practices, but doing so solidifies a whole lot of assumptions that may simply not be true.

Instead, truly effective marketing starts by questioning every assumption and reassembling the strategy that will work for your brand, your offering, your best customer type, your location and many other factors that are unique to you.

To solve this for clients, we conduct an audit in which we directly ask the client's best customers to give us the answers to their preferences and behaviors. That way we don't have to guess at the most important messaging opportunities, and our clients get to have meaningful conversations directly with their most valued customers (a sure win-win).

If you start with a correct assessment of who your customers are and how they behave, you'll at least have the right foundation to go find them.

2. Design a consistent experience for your leads.

Marketing is a system with a beginning, middle and end. Most companies pick one tactic ("we're going to use Facebook ads!") without considering how your customers typically buy what you offer, how they will find you, how they will perceive you, how they will get to know and trust you, how they will decide to purchase, and more.

That architecture is critical not only for designing a system that works, but also for finding tons of other opportunities to be a more cohesive business from the inside out.

For instance, last month we did a strategy session to build a consistent new-customer experience, and we collectively discovered that our client was in the wrong business to begin with (more specifically, they thought they were a medical diagnostics company when in fact they could be much better positioned as an artificial intelligence company).

Those kinds of insights can only come from stepping back and asking the right questions about the entire customer acquisition cycle, which I recommend every company go through at least once a year.

3. Adopt a model-and-test strategy.

Great marketers build and deploy beautiful promotions that produce some sort of lift in sales. Brilliant marketers build and deploy a marketing model that gets better over time, improves all areas of the business and allows clients to gain deep insights into what makes their customers buy.

The only way to responsibly go to market in our cluttered world is to build a model that is built on both the agency's experience and the client's own customer data. Through constantly building and testing, your marketing budget will go from throwing money into a black hole to being a meaningful investment in positioning your business to grow into the future.

Once you have your target customer assessment, consistent experience and growth model, you'll have everything you need to figure out your most efficient and effective marketing budget in less than 6 months. It won't be based on industry standards or what your competitors are doing -- in fact, it might be orders of magnitude more or less than you or your industry thinks is necessary, and we've indeed come into situations with too small and too large of a budget.

With this process, your budget will be built on a rigorous method to test assumptions and create real-world results for your sales.

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