When creating marketing budgets, many home improvement contractors take a quick snapshot look at company sales to determine how much to spend on lead generation and where to invest those dollars. But there can be a big difference between monthly sales and revenue, warns Steve Maltzman of SMA Consulting, in Redlands, Calif., an accountant whose expertise is in working with remodeling and home improvement companies.
Because sales are lost due to rescission, bad credit, or for other reasons, basing your marketing dollars on monthly sales may not be accurate. “Any of your percentages that you are trying to benchmark against should be measured against revenue, not sales for that month,” Maltzman says.
GOING OVER-BUDGET Suppose you do budget from sales and those sales fall short, which happens. “This is not a zero-sum game,” says Chuck Anton, CEO of Home Improvement Entrepreneur, in Chicago, and a REPLACEMENT CONTRACTOR columnist. “Sometimes you're going to overspend on marketing.”
If you do, he says, the place to make adjustments is probably not with media marketing — TV, radio — where long-term agreements typically leave little wiggle room. But even here, Anton suggests talking with your media company and explaining the situation. Often, they will be willing to work with you. With direct marketing — canvassing, shows and events, and the Internet — you have more control and can typically adjust expenses, he notes.
GRASS-ROOTS APPROACH Last year, like many home improvement companies around the U.S., American Design and Build, in Bel Air, Md., found itself falling short on sales targets set late in 2006. Still, the company was locked into marketing efforts and a budget appropriate to those projected sales.
When budgeting for 2008, the company took a “grass-roots” approach, says vice president Kevin Carmen, deciding to spend money only on marketing that had proved to work, and cutting back or omitting expenditures that didn't generate sales. “The grass-roots approach has allowed us to closely manage what was working and what wasn't working,” he says.
In today's economic climate, “you really can't afford to experiment,” says Carmen, noting that in the past, American Design and Build devoted a portion of its marketing budget to branding advertising. “We've realized that branding isn't what we need to do right now,” he says. “We need to focus on making the phone ring, on what's going to make the customer come into our showroom, and on what's going to make the customer set an appointment.”