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Building an Effective Marketing Budget

Most every agent has an approach they use to building a marketing budget. Very few of them feel a great deal of confidence in their approach. This article isn't intended to present you with a perfect, scientific approach but to get you moving in the right direction by helping to answer the two critical questions:

How Much Should I Expect to Spend on Marketing?

Most sources will tell you that you should plan on spending about 10% of your expected gross income on marketing. But let's look a bit closer at that 'rule of thumb.'

Some of you may be asking: "Ummm... expected gross income?" Gross income is simply the money you make after your broker's cut and before any of your own expenses. The 'expected' part just means that you should build your budget around the amount of business you 'expect' to do in the coming year.

This is a tricky point and we won't cover budgeting your gross income in detail. I'll only give you some very important counsel — be conservative. The most common mistake is unfounded optimism — overestimating your income and underestimating expenses. You are more vulnerable to this as a new agent. Experienced agents can use the prior year as a reasonable starting point. New agents should ask a mentor what they experienced in their first year.

Once you have estimated your expected gross income for the coming year, applying the 10% 'rule of thumb' couldn't be easier:

	Annual Estimated Gross Income
	x                         10%
	 Ideal Annual Marketing Spend

But is this the right answer? When I hear 'rule of thumb' and the answer is an even '10%' I get a little suspicious that there's not a lot of thought or data behind the rule. In this case, I decided to look at some primary research that Professional Agent conducted with a group of agents nationwide.

The Numbers

If you're like me and you like 'The Numbers', I hope you enjoy this section. If you don't like the numbers — and believe there is probably something wrong with those of us who do — please feel free to skip down to 'The Takeaways'.

The research shows a great diversity in Marketing budget as a percent of Gross Income, ranging from 0.5% up to 30%. The average was 9.3% — very close to our 'rule of thumb' of 10%. However, that average (mean) is highly influenced by some of the high numbers. The median — the percentage of the agent in the middle of the pack — was 5.0%. If our 'rule of thumb' is correct, the average agent is under-spending by half.

From there we tried to find patterns that would be useful to determining the right spending level — does spending more mean you make more money? We really didn't find any significant patterns however. Some agents who are making well into the six figures spend very little of their income on marketing. Some who make very little spend a good deal of that paltry income on marketing.

I imagine that most of you already suspect the reasons for this. Some agents who are very established and have a great deal of 'word of mouth' marketing going for them have relatively little need for expensive forms of marketing. At the other end of the spectrum, a new agent who isn't yet making a lot of money needs to spend more heavily in order to attract new business.

The Takeaways

In the end, you need to spend to your situation, not to a 'rule of thumb.' Established agents can typically rely on inexpensive methods such as 'word of mouth' and yard-signs and may be able to spend less than average. Newer agents may need to spend more than average as they look to establish their business and local reputation.

So take the time to think about the amount of business you want to generate and build a realistic plan of what you will need to spend to get there — probably starting at the higher end of your expected Gross Income (10 - 20%) until you are able to meet your goals with a lower spend. Local market conditions are important factors as well so I would strongly encourage you to pass review your plan with an experienced agent you trust to test some of your assumptions.

How Should I Spend my Marketing Budget?

Okay — now you have a budget for your annual marketing spend. The critical question is "How am I going spend this money?" Spending wisely is more important than how much you spend.

In order to build a wise spending plan, it is critical that you classify your marketing expenses into two main categories:

Lead Generation

Lead Generation is pretty obvious. These are marketing methods that are intended to directly generate leads. Expenses in this category do the work of bringing an unknown prospect from somewhere "out there" into your sights. These are the real drivers of your business.

Advertisements of all sorts fall into this category. An advertisement in a local newspaper, for example, is designed to get your name out there to people who may not know you today but may be in need of your services.

A quick way to decide if a marketing method should be categorized as Lead Generation is: "Could someone unknown to me find out about me through this marketing vehicle alone?" If the answer is yes, then the marketing vehicle is properly classified as Lead Generation.

Business Facilitation

Business Facilitation covers the basics of branding and communication that enable you to properly collect and act on leads you have generated. Expenses in this category help people who have found out about you through Lead Generation:

Some of your first marketing expenses probably fall in this category. Business cards are a great example of a Business Facilitation expense. Can they generate leads for you by themselves? No. Of course you can hand them out in your community but the distribution is your (low-cost) Lead Generation activity. The cards themselves are important to have because they can help your branding and they make it easy for people you meet to contact you. Cell phones are another example of a Business Facilitation expense.

Online Marketing — Lead Generation or Business Facilitation?

So which category does online marketing fall into? The answer is 'Both.' Online marketing is just like any other marketing and it has elements of both Lead Generation and Business Facilitation.

You can spend money on online Lead Generation through 'Pay-per-click' or 'Pay-per-lead' campaigns. You can also use advertisements on local sites for Lead Generation. Search Engine Optimization (SEO) is also considered a Lead Generation activity because if you are successful people will be able to find you online through the search engine results.

But here is a key point that many people miss: Your Web site itself is a Business Facilitation expense. Your Web site can deliver a lot of information about you and make it easy for prospects to contact you. But remember our litmus test for Lead Generation: "Could someone unknown to me find out about me through this marketing vehicle alone?" For your Web site, the answer is no.

Unless people are finding your Web site through some Lead Generation activity, the Web site is useless. Online ads, e-mail campaigns, offline marketing that drives people to your site and SEO are all methods that drive people to your site. Your site is supposed to support those methods (through great branding and an effective SEO blueprint) but it can't do anything to bring in the people by itself.

Should I Spend on Lead Generation or Business Facilitation?

I cannot emphasize this enough - you should try to focus your spending on Lead Generation and spend as little as necessary on Business Facilitators. In fact, if I can add an imprecise 'rule of thumb' of my own, I would encourage you to apply an 80/20 rule. 80% of your spend should go towards Lead Generation and 20% towards the Business Facilitators.

You might be a little confused that I would tell you that. 'But you sell Web sites and you are telling me to spend as little as necessary on my Web site, right?' That's exactly what we are telling you.

At Professional Agent, we want you to be successful. The fact is that in order to be successful you need to focus your spending on getting leads. If we convince you to spend a ton of money on a Web site, that's only taking money away from the methods that will bring people to that site. We've built and priced our sites to make sure that you aren't throwing money at Business Facilitation at the expense of Lead Generation.

So how much is "as little as necessary"? You want to make sure that your Business Facilitators — be they business cards or a Web site — properly reflect who you are. You wouldn't want an ugly, out-of-date Web site that provides no services. You want an attractive, updated and user-friendly site — for as little as possible. Fortunately, with Professional Agent Web sites, that doesn't have to be much — or anything at all!

Spending Wisely on Lead Generation

So now we know to spend the bulk of our marketing budget on Lead Generation. But what kind of Lead Generation? The obvious but not-so-helpful answer is "Whatever works." But that does form the core of your strategy. You need to keep a sharp on eye your Lead Generation spend to make sure your money goes where it's most effective.

You will need some method of tracking how you earn business. If you find you are spending money where there is no return, redeploy that money to a method that is working for you. Does this sound so obvious that you're wondering why I bothered to write it down? Probably. And yet, almost no agents do this well and there are two main reasons:

Fortunately, this data collection and analysis is much easier when it comes to online marketing. Some Web sites (including Professional Agent Premium version) come with great statistics that tell you where your Web site visitors are coming from? Are they coming from the Pay-per-click campaign or are they coming from the ad you are running on a community site? Are people finding you through Google or through Yahoo? All of these answers are important when deciding how you will spend your money next month (or even tomorrow.)

Conclusion

Decide on the right amount of money to spend based on your business plan and position in the market and then spend that money wisely. 'Wisely', in this business, means spending what is necessary on Business Facilitation vehicles and the rest on Lead Generation. If you start with that focus you are almost there and, in order to really optimize, you just need to allocate your Lead Generation dollars to the methods that are producing for you. It takes some attention but you can do it and it does work. Good luck and good selling!