You believe your marketing costs are under 10% because your last accounting statement indicated they were at 8% of installed revenue. However, the business you sold this month may not be installed for six to eight weeks. As such, you may not have a handle on what you actually spent on marketing to produce this business.

What goes into the figure? A marketing manager, a call center, maintenance of fax, mailing, and e-mail lists, preparation of artwork for your mailers, inserts, door hangers, or the like — all this is part of your marketing cost. Do you separate your phone bill, isolating not only the advertising portion but warm call, referral, and follow ups? In the average, well-run organization, these add up to 2% to 3% more.

Ultimately, your marketing costs will be determined by the efficiency of your sales organization, meaning presentations per lead issued, closing rate, and retention are all major factors.

Here is a realistic example of someone who frequently says his marketing costs are under 10%.

Say the company prints, handles, and mails 10,000 pieces at a cost of $12,500. That turns into 100 raw leads, which lead to 80 appointments set and 60 actual presentations. So far, they've spent $208 per lead that results in a sit. If the company gets 20 sales (with an average of $8,000 each for $160,000 total), then we're talking $625 per lead that turns into a sale. Throw out the recision and credit rejects, and the company nets 14 sales at a volume of $112,000. The initial $12,500 investment is 11% of that revenue total.

But, consider the applicable G & A, the confirmer, assigned phone costs, management, and more. That adds another 3% and brings the total marketing cost up to 14%.

The true cost of marketing has risen in many organizations to be higher than sales costs and not infrequently equals or exceeds total G & A. With the proper balance of various lead sources and a clear understanding of total marketing costs, you can improve your bottom line. —Dave Yoho (www.daveyoho.com) is president of the oldest and largest consulting group serving the home improvement industry. He will present seminars on “Creating Your Price Formula” and “How To Sell Value vs. Price” at the Remodeling Show, October 6 and 7, 2004.