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    Carey Smith on the 4% Rule

    How do you market a business, a product or a service successfully while keeping in line with a marketing budget?  The first thing is to work out your marketing budget.  I was fortunate to be taught early in my career about percentages.  Understanding of total revenue base and how a business can maintain a profit by working in percentages. 

    I was with my friend this morning and he has a car wash business.  He will have an annual turnover of about $300,000 per year.  He has run this business for just on 3 months.  What should he spend on marketing? What marketing should he do? How does he measure the results? 

    car wash

    When you take into account a business and the three key costs which are generally labour, premises and marketing, usually labour will be approximately 45% of total turnover, premises 5%, and marketing should be no more than 4%.  The balance are generally sundry costs which add up to around 20%.  This gives the business a target of 25% gross to net profit.  If we quarantine marketing then he has a total spend available of $12k.  It doesn’t seem much but there again he is in the business of making people feel good about their car 

    What we all know is who our customer is.  80% of his customers are known.  So immediately he has a target but if he can only spend on average 4% of his total turnover to attract a customer then where does he target it? 

    The best form of marketing for his business is brand marketing through the customers that he currently is getting.  Emphasising loyalty and referral will be the best way for his business to continue to grow at a steady rate.  Remembering that the customer of his business will always want their car washed.  The question for him is “will they come back?” 

    It is important to know the percentages within your business, they are standard and how you market your business or your product, linked with your service, is a key to new customers and customer retention.  In our business of real estate, generally the focus is on the product and rarely on the brand but with many businesses the focus is on the brand and then it drills through to the product.  My recent experience at looking at cars shows an emphasis on the brand which then provides the different products within that brand.  How much do you spend on marketing and is it at the 4% level?

     

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