Home service businesses and contractors can easily spend a lot of money trying to attract new customers and clients.
Your marketing strategy is what ultimately determines the success of your business. The right tools and processes will help you pick the best tactics to reach the right customers, generate leads, and focus on what works.
But, how much should you be spending each month on your marketing?
There are lots of things when it comes to marketing ideas for a contracting business that you can try and test out: Google ads, website design, search engine optimization (SEO), landing page templates, email marketing, Facebook ads, etc. The list is huge!
All these methods are great and they can definitely help grow your business, but how do you know how many resources you should allocate to each of those areas?
The first thing to understand is that your marketing campaign isn’t an expense; it’s an investment in future sales and your ability to get more customers.
Your budget should be guided by your overall goals and objectives. but there are some general guidelines that contractors and home service businesses can follow when setting the amount they’ll spend on marketing each month.
The general benchmarks you can use to decide how much you should be spending are: the size of your company, the size of your market, the size of your budget, your goals, and how crowded your particular category is.
The amount you should spend on marketing your contracting business generally depends upon five things:
What is your revenue?
If you figure out what your revenue and profit are, you have a good idea of how much cash you have to spend.
A good rule of thumb is that 10 percent of your gross revenues should go toward marketing. For example, if your company grosses $500,000 annually, you should be spending $5,000 per month on marketing. But what companies actually spend varies.
We know a lot of contractors who are actively growing their companies are setting aside 7-15% of their gross monthly revenue as their budgets. But every business is somewhat unique depending on your service niche and the location of your business.
For example, U.S. marketing executives devoted on average between seven and 10 percent of their company’s revenues towards marketing budgets, according to Statista. As of February 2020, this figure grew to 13.2 percent.
In our experience, contractors and home service companies should spend between 7 and 15 percent of total revenue on marketing, with 10 percent being about the average.
Let’s say that if you go by an industry average of 10%, you will need to figure out your yearly revenue and then divide it by 12. Then multiply that number .10 to get 10% as a monthly figure for your budget.
Where is your business located?
Businesses can get pretty expensive to market depending on where you are. Marketing your contracting business in large cities is more expensive than in smaller cities. This is because larger cities have much more competition than smaller cities do.
In order for potential customers to see your ad, you need to make sure that it stands out from the crowd. In large cities, this can be very difficult to do.
In large cities, there are many businesses competing for the same dollars and attention of the consumer. The consumer has choices and they are actively choosing whom to purchase from. If you aren’t in the top five choices, you will be out of luck.
In smaller cities, there is less competition and fewer choices for consumers. It’s easier to get into the top five or even the top one or two in a smaller city than in a larger city. You can get a disproportionate share of the market with fewer dollars spent on advertising and marketing.
For example, take a city with roughly 10 million people (New York). A simple Google search shows that there are over 20,000 general contractors in New York City alone! If you’re an HVAC repair company in New York, you’ll likely need to spend more than 15% just to stay afloat.
If you’re just starting out and don’t have much competition in your area, you can probably get away with spending less than 10%.
What are your main service offerings (business niche)?
A contractor’s business niche is a specific type of service offering that they focus on.
When you break down services offerings into categories, you can look at what kinds of customers are in each one. You can also see how many customers there are in each one and how much money they spend.
It’s often helpful to think of a niche as a “category” (I often use these terms interchangeably). For example, the plumbing category would contain all types of plumbing services – from drain cleaning to installing new water heaters.
The electrical category would include things like rewiring homes and installing new electrical panels. The home remodeling niche would include kitchen, bath and entire home remodels.
Each of these services has different competitive factors and a different price point and this will affect the cost of your ad spend.
In general, the more competition there is in your niche – meaning, the more businesses offering similar products or services – the more you’ll have to spend on marketing.
What ROI are you getting on the marketing tactics you use?
It really all boils down to the ROI you receive on your investment.
ROI stands for “return on investment.” In the case of marketing, it’s how much money you make from a given investment.
For example, if you spent $100 on printing flyers for your business, and those flyers generated $200 in sales over a two-week period, then your return on investment was 40 percent ($100/($200-$100)).
Monitor your results over time so that you can set goals for improvement — just like in any other business. In order to measure the effectiveness of your efforts, you need to constantly be monitoring how your marketing methods are performing.
You’ll need to track everything from cost-per lead, sales (and profits) to customer feedback to get an accurate picture of your marketing tactics and how well they’re working. The best approach is to test different strategies to find out which methods work best for your business.
A lot of this will come down to the metrics that are important to you and your business.
Here are some things you should consider:
Volume of traffic – How many people are visiting your site? Are they returning? How often? What’s their average order value?
It’s impossible to get detailed data on visitors if you don’t know their names, but there are a number of free ways to estimate the amount of traffic you’re getting from search engines, social media, email lists or other sources.
Leads generated – Are your salespeople generating enough leads for you? If so, then how many customers are they talking with each month?
These days, most businesses have access to analytics software that can help them track their sales pipeline and identify where their leads are coming from.
What is your cost per lead?
How much does it cost for a potential customer to contact a salesperson and be put through to a sales rep?
This is one of the most important metrics you need to measure and dial in at 110%.
If you are doing SEO, for example, you will want to monitor your website traffic before, during, and after you start your campaign. You can’t just assume that increased traffic is translating into increased sales; instead, make sure that’s happening by tracking the results of your efforts using analytics tools like Google Analytics or web analytics software.
For a video SEO campaign, you should track the number of views and clicks those videos get. That way, you can determine which types of videos get the most traction and which don’t.
If you’re running Facebook ads, you should measure how many people in your local market see the ads — what percentage of them click on them? If you’re running Google Ads campaigns, you need some way to monitor how many leads you are generating and much money in sales those tactics are bringing in.
As long as you’re measuring your progress on a regular basis, don’t be afraid to make adjustments if you see things aren’t working out as well as expected
Botom line, if you follow this advice and you’re very strategic in how you spend your money on marketing, you can get a great ROI.