How much should Contractors spend on Advertising? | Building Business

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We’re going to talk about how much should you spend on advertising and i feel like this is a total uh there’s a lot of wasted money in this space right now because people don’t know where to put money so they’re just like well i don’t know let’s throw some money over here let’s throw some more money over here and the scarier thing is they don’t have a good way

To measure whether or not that money is actually being worked correctly that’s for sure um and sometimes the funny the one of the worst questions that i get is how little can i spend on advertising like i guarantee their competition’s not saying it’s it’s a business ownership mindset right you’re controlling your p l but it’s like how little can i spend on on

Marketing and advertising and really let’s talk about industry standards a little bit right industry standard for a roofing company is five percent mm-hmm but that’s not like what if you’re a fencing company would it be five percent the right it could be most home exterior contractors for sure um once you get into the interior remodeling i think those i think

Those uh companies can spend even more into like the 10 area uh more on average what is that five to ten percent is that off top line revenue total like if you’re a one million dollar company should be spending about fifty thousand dollars you know yeah gross revenue goal yeah goal okay so you want to spin against where you’re going not where you’re at right now

Yeah spend against where you got to spend to where you’re going um skate towards the puck right like and so um so industry standard five percent right give give or take uh most of the clients that we work with are between three and eight percent it’s gonna change a lot depending on your business how you generate business for your company uh one of the things i

Like to look at when we’re going through and analyzing this for a company is what was your lead flow last year yeah right what did you what did you hit in your revenue and what was your lead flow to get to there and how how did you get there so you know kind of referencing your guys’s study again that you guys did um you know i think the average contractor was

Around two million right yeah they said about the average size company we have a lot of gigantic companies too but yeah and and and then they spent you know they they invested in their marketing about a hundred thousand dollars i thought that was telling yeah i was like that’s five percent right right right and that was just a survey of all of them but your

Business is it depends on your business so let’s look at what you did last year right if you did two million dollars last year and in that two million dollars eighty percent of it was referrals and and twenty percent of it was from you know ten percent was from door knocking and fight you know you break down the mix right into your lead yeah some was from google

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Someone’s from uh lead aggregators and like you’re breaking down that mix now your goal for this year is three million yeah there’s a gap yeah right you can’t get there on the same engine you got on to where you are right now exactly so my question i always ask is if you didn’t do anything different lat than last year would you hit the same revenue that you

Would hit right would you hit that two million again and most of the time the answer is yes so then what a contractor needs to think about is how do they buy that extra million dollars in market share yeah because that’s what you’re doing you are buying market share so that’s why that varies three to eight percent some i’ve seen startup companies investing as

Much as 20 in their marketing for sure in the first couple years that might be a smart move because they wanted to go from zero to 10 to 15 to 20 million dollars they had huge revenue goals so they invested in that a company that we work with wrapped six 16 brand new trucks yeah nice billboards all over the place wow tv advertising all in on google ads facebook

Ads you know the seo like all in chips on the table like let’s let we’re going and it works yeah they crushed it but you have to have faith in the outcome to execute on something i mean honestly you’re taking risk the risk is like so that’s why a lot of people like that’s right how’s the littlest i can pay because they’re trying to limit the risk yeah um now

The question is if five to ten percent is sort of like the sweet spot if you’re not there you’re probably not going to make it long-term then why not do fifty percent why does where’s the cap out happen and how do you know if you’re spending too much on advertising uh you’ll find out in your p l at the end of the year for sure because it costs you too much to

Acquire that amount why are a customer right so then you have you’re going back into things a little bit more detailed into your customer acquisition cost your optimal customer acquisition cost and the long-term value of that customer yep so i think that you know okay we need to fill this gap right we need to get from two million to three million let maybe it

That’ll take an eight percent uh marketing effort there so three times eight two hundred forty thousand dollars is what it will be invested in marketing that’s all of your marketing not just your digital not just like all of your marketing all together and so then when we’re when when we’re looking in there we’re figuring out okay what is our optimal customer

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Acquisition cost because you should have a target net profit number for your company also right like that’s a smart thing to have like i want it i want my company to net 10 pre-tax revenue right like or 12 or 15 wherever you want to end up and you you’ll you can reverse engineer this down to how much would it would you be able to pay to acquire a new customer

To hit those profit margins that you want to hit and so you want to be able to work on that if as you’re going along this is what we’re talking about measuring you you brought up measuring on a few of these episodes measuring the kpis measuring how things are going like now you know once you’ve determined this and defined this now you can measure it if you don’t

Have those numbers if the number isn’t hey our optimal customer acquisition cost is hundred dollars and then you look at the month of june and you’re like man we’re at 825 dollars we’re off somewhere yeah it’s costing us too much to acquire customers right now exactly so now you can look back one at your marketing process two at your sales process and see where

Where you could where you can improve without those key metrics you’ll never get there but you know from a budgeting perspective it’s it’s looking at your goal budgeting for your goal and and then not underspending on that goal yeah i mean if you’re a job nimbus customer you have a right inside of there it tells you you can just run an average on like what is it

What’s our average deal size what’s the average cost to acquire a customer and you can be able to do some really quick math to understand this you don’t have to be like super super down to the penny either it’s mostly like trajectory wise you’re trying to optimize your marketing at the same time as acquire more revenue yeah on your goals and a lot of times where

I a lot of times i and i’m a marketer so i you know it’s a sore point to me but we get blamed all right interesting we get blamed for for things that we work in our numbers jim what the heck but then like in our in our agency we listen to every phone call that comes into every one of our clients businesses i could tell you some pain points that are there that

Are that are not that are not marketing related yeah not setting the appointment on that initial phone call crazy right we’ll call you back to set something up yeah joe will call you back in three days to to tell you when we can be there in four weeks yeah they’re calling the next company right and the next company is already calling back and has it all dialed

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In and booked them for the next day that’s right you know that’s right yeah and so so you gotta you know you have to watch your marketing budget but you have to look at the other levers that that turn that marketing budget into roi and really what we’re talking about there’s optimization optimization so okay that’s like the two main things i’m hearing here is

That we’ve got to have like a focus on the costs so in this cost structure should we know that’s how you can tell five to ten percent is your sweet spot generally speaking that’s where you should be if you’re brand new in the market maybe you want to go higher also if you’re super aggressive in how what your goals are like we’re trying to double or triple the

Company you may want to go higher yeah and then you want to focus on optimizing those things yeah and that really brings makes me think about being careful and cognizant of the fulfillment of your services yeah right you can break things quickly if if you go all in and you go hire 10 sales reps and turn on all your you know turn on all your ads and you may not

Be ready for that you may not be ready for that so if you are looking at slower growth you can determine your marketing budget you that you don’t have to keep filling a big gap yeah fill the little gap we get a little bit out of time and just keep keep drawing that up over time and i think that’s the big takeaway for me is like just do something now and yeah i

Like that focus on just a little bit better every day get you there yeah it’s not the big swing that’s business yeah exactly right thanks so much for joining us you’ve got to go to forward slash building business now we’ve got a bunch of resources there there’s tips and tricks there’s industry insights and all of it is free so go and check it out

Right away job nimbus is the best software tool to get you more organized more efficient and frankly to give you your life back so you can have some life balance as you run your business for more information about roofer marketers go to and get a copy of our free book the best known roofer the omnipresent framework for your roofing company

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How much should Contractors spend on Advertising? | Building Business By JobNimbus