vnb5sf48hw – One of the questions I’m frequently asked is: “How much should my company spend on marketing and advertising?” It’s a conundrum that vexes many corporate leaders, from emerging entrepreneurs to seasoned CEOs. Unfortunately, instead of seeking a rational answer to the question, many of them just ignore it and hope it will go away.

As a rule, emerging companies focus most of their time and talents on meeting the needs of customers, as well they should. If they don’t take care of the customers they already have, everything else will be academic. Strangely, however, many neglect the function of winning customers in the first place. Others naively assume that if they simply provide excellent products or services, their reputation will precede them. Call it the “build a better mousetrap” syndrome. But the world has too many other things to do with its time than beat a path to your door. That means you need to structure your profit-and-loss statement in such a way that you can profitably allocate a reasonable percentage of your revenue to marketing.

The Big Question: How Much?

While there is no definitive answer as to how much any business should spend on marketing, there are general guidelines any company can use to develop a formula that works for them.

Your first step should be to try to find out what the advertising-to-sales ratio typically is in your field. Public companies in your industry may give a figure for their marketing spending in their financial statements (found in their annual reports). With a simple calculation, you can figure out what percentage of their overall revenue that represents. If you can’t find any public companies that seem similar enough to yours, you might want to start at 5% and then adjust your projected spending up or down based on the size of your market, the cost of media, what you can learn about how much your competitors are spending, and the speed at which you’d like to grow.

You’ll also need to ask yourself if your business is built to leverage volume or to leverage margin. Even within industries, there are substantial differences in the marketing spend of volume-driven companies compared with margin-driven ones. Volume-driven companies tend to spend a tiny percentage of sales on marketing, in part because their large revenues enable small contributions to add up fast, and in part because of the margin pressures they face in having to compete with other high volume companies. By contrast, margin-driven companies tend to spend a larger percentage of sales on marketing: They have room in their margins to afford it, and they’re often working from a smaller revenue base.

The retail industry provides some good examples. While Wal-Mart (WMT) might spend a meager 0.4% of sales on advertising, the sheer size of the company turns that tiny percentage into a significant budget. Wal-Mart’s nominally higher-margin competitor, Target (TGT), spends closer to 2% of its sales on advertising, while Best Buy (BBY), as a specialty retailer, spends upwards of 3%. Finally, more upscale stores like Macy’s typically spend on the order of 5%.

The same kind of ratios can be seen in the car industry (automakers’ generally spend 2.5% to 3.5% of revenue on marketing), liquor (5.5% to 7.5%), packaged goods (4% to 10%), and every other industry.

If you’re in a services business, you might want to bump your starting point higher than 5%. For example, like most professional services firms, my company is more margin-oriented than volume-oriented, so fueling its growth requires that we spend a higher percentage of our revenues. Last year, our number was just over 8%, and I’ve seen companies spend upwards of 15% when warranted—especially young companies that need to invest to build their brand.

Marketing, Not Just Advertising

It’s important to make a qualification here. Giant consumer corporations such as automakers, packaged food manufacturers, and retail chains spend a huge percentage of their marketing dollars on paid media advertising, the most visible (and expensive) tool in the marketing toolbox. Depending on the size of your company and the business you’re in, advertising might not be the right (and certainly not the only) tool for you.

A professional services company like my own is a good case in point. While we serve a national clientele, we are much too small to effectively advertise on a national scale. As a result, we don’t purchase paid media advertising. But we do have an aggressive marketing program built around tactics like direct mail, online marketing and public relations. For a variety of reasons, paid advertising might not be right for your company either, but events, vehicle wraps, point-of-sale displays, or other tactics certainly could be.

The important thing is intentionally and deliberately to set aside some rational percentage of your sales to get out there. That way, the question you have to answer isn’t “How much should we spend?” but rather, “How do we spend most effectively?”

1) Tupperware, first developed in 1945 had by 1946 moved to a direct sales model. This is the company who invented the party based model of direct sales as we know it. Tupperware now has nearly 2 million associates in nearly 100 countries worldwide.

2) Avon was once the California Perfume Company, back in 1886 when it began; by 1928, however, they had adopted the more familiar name of Avon. This is one of the most well known direct sales companies on Earth now, with almost 5 million representatives in 143 countries worldwide.

3) In 1963, Mary Kay Ash began Mary Kay Inc. in the interests of giving women an opportunity to improve their lives through running their own business. There are now around 1.6 representatives of the company.

4) Discovery Toys, Inc. has been in the educational toys business since 1978. This company only does business in the U.S. and Canada and uses the party model of direct sales.

5) Home Interiors & Gifts, now celebrating its 50th anniversary in business, boasts more than 100,000 associates employing both parties and face-to-face marketing methods to sell their products,

6) Pampered Chef has been around since 1980; this is one of the newest direct sales companies. They have over 60,000 Pampered Chef consultants worldwide and use their own variation on the party plan (the Kitchen Show).

7) Also started in 1980, Arbonne International sells their skin care products via person-to-person marketing instead of the party plan method.

Peter Usborne’s Usborne Books has been around since 1973, selling high quality books for children. They employ person-to-person marketing as well as parties to market their books.

9) Creative Memories, a scrapbooking supply company, has been using the party plan method of marketing their products since 1987 and have tens of thousands of consultants all over the world.

10) Meleleuca, Inc. has been in the business of green products since 1985 and markets their tea tree oil based skin care, personal care and home products worldwide via person-to-person marketing. They are the fastest growing direct sales company in the U.S.

These direct sales companies are just ten out of the multitude of such companies out there which you can become involved with. Before signing on with any company, do some research to determine what their compensation model is, if online marketing is permissible and whether the company’s goals fit in with your own.

Doing this sort of evaluation on each company you are considering will help you to be better informed and thus make a better decision about which direct sales company is right for you.

If you were sitting at the dining room table with Mr. and Mrs. Prospect and their next-door neighbor walked in the home, do you think Mr. and Mrs. Prospect would introduce you to the neighbor and tell the neighbor what you do for a living? Of course, they would. Well asking for referrals is nothing more than this. It is nothing more than asking for an introduction. That’s all: just a simple introduction.

Second, for some reason most sales people believe there is only one appropriate time to ask for referrals. Most feel that the only time to ask for referrals is after the close of a successful sale in where the prospect bought the product. Other more astute sales people will also ask for referrals after the close from a no-sale visit, but still this is not enough. There are plenty of other opportunities to ask for referrals. First let’s look at a few referrals tips and then examine all of the additional opportunities to get referrals.

Think!

1. Help people give you referrals: Often people have a hard time coming up with names of people they believe are appropriate to introduce you to. You need to HELP them. Make suggestions on where they can find names: their cell phone, telephone book, appointment book, church members, club members, association members, bowling team, sports and recreation partners, dentist, doctor, school personnel, etc. You should have a ready list to supply people to help them think of referrals for you.

2. People NOT Prospects: Often people will begin to try to think of referrals of those who may be buyers or at least good prospects for you. You must stress that this is not the idea. One way to explain it is that referrals are a method to advertise and with advertising you do not think about who will buy or who will not. You job is just to get the message to many people. Let the customer know that it is never a waste of your time to talk about your product. You just need people.

3. Controls Costs: Let the customer know that this form of advertising helps your company and others keep costs low. Let them know that word-of-mouth is an integral part of how you work. It is how your company operates.

Many Opportunities

There are many opportunities to ask for referrals. Choose just three and use them consistently and you will have more referrals than you can handle!

Prospecting – When making cold or warm calls to set appointments what do you do when a prospect refuses an appointment? These are people to ask for referrals. Just because the person does not wish to accept an appointment, does not mean he or she will not direct you to others who will. If you are professional on the telephone, ask people whom you do not set appointments with for referrals of who you may call.

Setting the appointment – After you set an appointment, depending on what you sell, could be a good time to ask for a referral: especially if you are going to travel to an area that is out of the way. Ask the person if they know of someone else you might be able to visit while you are in the area.

The Warm-Up – Before you begin your sales presentation and you are warming up and getting to know the prospect, is a perfect time to ask for referrals. If you are smart, you can build this into your warm up talk. As you ask about friends, relatives and associates, you can easily led to asking to meet those people.

During the Presentation – Depending on your product, you will have several opportunities during your presentation to make a connection to associates of the customer. Short periods of dead air are good times. For instance, when you have to calculate something or construct an offer. During that dead time, ask the product to fill out a referral form.

Closing – Closing the sale presents an excellent opportunity to ask for referrals, even before you get the answer. Also, you can use referrals as a great incentive to offer the customer extra benefits or a lower price. If your selling process includes a price drop, use the discount to buy the referrals.

After the Sale or No Sale – If the prospect bought—it is a good time to ask for referrals. However, if they did not buy, this is also a good time.

Product Delivery – Right after you deliver your new product or set up the new program or install the new software is a perfect time to ask for referrals. Your customer is happy and excited. Take advantage of this timing.

Customer Service Calls – Your customer had a problem that your company solved exactly in the manner that you said you would; you provided excellent customer service—this has to be one of the best times to get referrals.

Continuing Relationship – You can always call customers and ask for a referral. There really are no rules.

Whilst it may be easy to “blame the sales team”, sales consulting companies will tell you that it is seldom so simple. Sales performance can suffer because of many reasons, both external and internal to a company. However, there are usually three key areas that a sales consulting firm will focus on:

1. sales processes
2. resource optimisation
3. management tools

Sales processes
Whether you’re a corporate with clearly defined sales processes or a small business with a laissez-faire approach to your sales team, the reality is that your people are following a process. A sales consulting company will help its clients first define the existing sales process, working with your sales team, management, and customers to understand what’s actually happening.

Often, from initial sales consulting sessions, it becomes clear that not every sales person is following the same process. One of the huge benefits of sales consulting is that it provides a fresh perspective, unencumbered by “baked in” assumptions and internal culture.

Once the sales process has been defined and mapped, a sales consulting firm will work with its client to refine and optimise it to improve top-line performance.

Resource optimisation
One of the clear things that can be uncovered through a sales consulting project and a sales process mapping exercise is “waste”. In other fields, such as manufacturing, waste is highly visible. In sales, waste is almost accepted as part of “the numbers game”.

Sales consulting companies will work with their clients to identify areas of waste. This will include unnecessary time spent by the sales force without adding value to customers. It will also include time wasted on prospects that do not convert.

In addition to waste, a sales consulting company will seek to understand what’s working well. Modelling your star performances and identifying how they differ from your lower performing sales people is an essential part of the sales consulting process.

Understanding your sales processes through a sales consulting project will enable you to clearly see what needs to be changed to optimise your existing resources. Sales consulting can bring immediate value and results without further investment in people or technology; often the simplest change from a sales consulting recommendation will have a major impact on top-line results.

Management tools
Of course, identifying what to change is only part of the sales consulting puzzle. The next part is to implement the recommendations of your sales consulting partner and make sure they stick.

Management tools do not necessarily mean expensive software. Often, a sales consulting company will develop management models using simple everyday tools such as Microsoft Excel. These can be set up to provide vital management information and “dashboards” that pool individual sales reports and forecasts in a central set of key performance indicators.

In additional to hard tools, sales consulting firms will support their clients with soft tools such as coaching models. Coaching can be an effective way to support change resulting from any sales consulting project.

With the right tools, sales consulting companies can transfer capabilities to the management team to ensure that performance improvements are embedded within the organisation.

The sales consulting process really is very simple:

1. Map the current sales processes and understand what’s actually happening.
2. Identify where the current process is not working; where resources are being wasted. Also, focus on where they are working; look at your star performers.
3. Finally, your sales consulting partner will provide you with the management tools you need to make the necessary changes and embed them within your company.

For any size of organisation, working with a sales consulting company to identify areas for improvement and then implement necessary change will provide measurable improvement in top-line performance.