Monday, 05 March 2007 07:46

Is a realistic marketing budget possible?

Written by Tom Franklin

    If you’ve been in business a while, it’s likely you have been hit up for contributions by every organization and charity in your vicinity. When you first started out, you probably just sent a few bucks to those that struck you as desirable enough to support. But once you contribute to one, you get on the list and soon you’re swamped by requests for donations.

While it’s true that these contributions fall under the public relations part of marketing, you have many other expenditures to consider: business cards, stationery, ads and other media, promotional calls, literature and mailings, billboards and signs, a website, business lunches and entertainment, and perhaps a marketing consultant.

If you really stop to think about it, if you pay commissions for referrals or bonuses to estimators for jobs captured, these are actually marketing expenses. Any activity that brings business in the door could be considered part of the shop’s marketing effort. But few shops take the time to tally up the total cost, or to determine what percentage of gross or net income should be allocated to marketing.
Determine a budget
    Research shows that on average, U.S. corporations allocate 6 percent of gross revenues to their marketing budgets. The rule of thumb says 4 to 10 percent of gross revenues are necessary for an effective marketing budget. The amounts allocated range from 1 percent for industrial business-to-business firms to 10 percent or more for consumer packaged goods, which can increase considerably with new product intros. For service businesses like collision repair facilities, 6 to 7 percent is considered a minimum.
    Unfortunately, many shops that do try to create a marketing budget probably just estimate revenue first, then subtract cost-of-production, and other expenses, and finally allocate what’s left over to the marketing budget. One consultant suggests a better approach. It is to estimate what your competition is spending and try to match or slightly exceed that. Another wisely points out the importance of analyzing cost versus benefit. The only effective way to do this is to meticulously track the results of every promotional effort.
Re-examine direct repair
    Even shops that have direct repair relationships with insurance companies should track the volume of jobs referred by each DRP program. Why? One of the “hidden” marketing costs is the labor and parts discount given to the insurance company. From a marketing point of view, these discounts are an expense paid in exchange for the job referrals. If your posted labor rate is $40 an hour and you give an insurance company a $36 an hour rate, that 10 percent difference is a direct marketing cost. For 1000 hours of repair time you get from that DRP relationship, you have essentially paid $4000. A genuine cost versus benefit analysis might determine that your cost is greater than your benefit with some DRP programs.
Track your advertisements
    If you include coupons in mailings to agents, brokers and commercial fleet managers, you can at least track the value of those mailings if the coupons come back, or if the customers who come in let you know who referred them. Mailings and ads that don’t provide a coupon or a special discount for mentioning the advertising source that brought them in are just a shot in the dark. You have no way of doing a cost versus benefit analysis. Even a Yellow Pages ad should make a specific offer that a reader will mention when coming to the shop. Marketing guru Jay Abraham, who has been known to earn $5000 an hour for his marketing consultations, said that ads and promotions that don’t prompt a specific response that you can track are a complete waste of money. He said most institutional advertising is simply a method of transferring your money to the advertising agency.
    If this is true, what is the value of contributing to local charities, schools or chambers of commerce? If all your contribution does is get your name in a directory or in some obscure booklet, there is virtually no way to track the benefit of the marketing. But if you can prompt a specific response in the ad, like coming in for a detail or paintless dent repair, then it might be worthwhile and able to track. What can make contributions to these organizations profitable is if they provide an opportunity to speak to the group. There may be a definite benefit if you can convey educational information about the collision repair process and why your shop excels at it and is far better than your competition. From these presentations, you may get real customers -- a benefit that you can definitely track!
    When you sit down to create a marketing budget, don’t forget to include these many costly concessions you make to get more business. Use the budgeting process as an opportunity to determine whether or not you are getting real benefits from advertising, mailings, promotional materials and more. Even if you only net $100,000 a year after production costs, overhead, and taxes, and you decide to invest $7000 in marketing, this is your chance to choose where to spend that money wisely and effectively. Instead of spending $500 on some ad or promotion that can’t be tracked, consider offering an additional $500 in bonus money to the estimator with the best conversion ratio. Or pay a local mechanic to refer direct business. Or increase the discounts you offer in coupons or ads. Focus more sharply on what activities bring in real business that can be tracked and you may find your marketing budget pays for itself many times over.

    Tom Franklin has been a sales and marketing representative and consultant for forty years and is the author of the books, “Business Battlefield Marketing for Body Shops,” “Tom Franklin's Top 40 Marketing Tactics for Body Shops,” and “Strategies for Greater Body Shop Growth.” His marketing company now provides marketing solutions and services for body shops and other businesses. He can be reached for questions or comments at (323) 871-6862, by fax at (323) 465-2228, or by email: tbfranklin@aol.com.