How much do I need to spend on advertising?

This is a question I get quite a bit from the new business owners I consult with in my business. Although there is no set answer, the question I always pose to the new business owner is "what level of business do you desire?" This question at least gets the business owner thinking about a vision of what he would like his business to look like. The level of business is normally a function of the income desired by a new business owner and then working backwards via examining fixed overhead as well as variable costs to determine the revenue level needed to cover all three.

Once we've determined the revenue level, it is then a matter of figuring out what their average sale will be. In my business, a new business owner will normally make a sale of around $4,000 (decorative coatings for concrete). With that said, in order for a business owner to reach a revenue level of $200,000 annually, he will need to sell approximately 50 jobs for the year.

After we have this information, we look at how many leads are needed in order to secure an average sale. Again, using my business, the average owner needs four leads in order to secure one sale. So using some simple math, we will need about 200 leads throughout the year in order to secure our 50 jobs.

The last part of the advertising equation is figuring out what each lead will cost us. This is a moving target because as you get better at marketing, your cost per lead should come down. But I will normally start one of my business owners with a cost per lead of $30. This means that in order to reach the 200 lead mark throughout the year, he will need to spend about $6000 annually.