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Marketing Budget

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Hey Guys,

Hope everyone is thriving and striving!

I am American but own and operate a small craft distillery outside of the United States.  I am very interested in bringing my product home.  I have been in business for about 3 years now and I have talked to a lot of suppliers(bottles, tops, shippers, warehouses...etc) and I believe my business plan(prospectus P+L and cash-flow statements) is getting to be fairly accurate.  Now I have run into one major number that I have been unable to justify my assumptions.  And that is my MARKETING budget.  I think we all know that when done properly producing a product(unless you re doing something crazy) produces reasonable gross margins.  However, the question is and it is a big question can you sell the product???  My belief is the answer to that question is(assuming we have a good product and I believe I do) how much are you willing to spend in time and money on marketing?   I have found in my numbers almost without doubt that is the defining question to whether I can be profitable or not.

1.  How much do I need to spend per case in marketing to 1 sell my product and 2 create a reasonable growth rate?   (Let us assume my product will retail for $24.99 per bottle)

2. What is a reasonable growth rate? (10%, per month?)

3. Is there some sort of tipping point?  Not sure how to say this properly, but let us say I need $25 in marketing per case.  But I only start with $25 dollars and let us say that is for some reason not possible to create a demand with my $25.  Would you say I need to start with $20,000 expecting $25 per case in marketing.  If anyone understands what I am asking and can describe it better, please do so.

So please if you could let me know what you guys are spending on marketing and how that is working for you, I would be grateful.

I know these are big questions with 1 million variables flying in every direction.  But I am trying to get into the ball park.  After I am in the ballpark I think I will hire a consultant to nail down my numbers.  I need some investment money.  As a responsibility to my future investors I want to make sure my numbers are as accurate and truthful as possible.

 

Thank you!

 

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I suppose if you have a million variables, the answer is always going to be the helpful - 'It depends...' 

Rather than looking at the per case marketing cost, rather look at the cost per customer. So, how many customers can you expect and how much did it cost you to get them to buy your product?

If you've already been operating for three years, you'll know you kinda top out on your revenues, so your growth desire is more tied to your ability to get out there and bring in the business than it is a fictional percentage point.  Its likely what you've done abroad is what you'll do at home. Other factors might be location, if you are on main street the cost of the customers might be low but the cost of rent and taxes might be high, etc., etc.

The best marketing money I ever spent was on my street sandwich boards. Those things haul in customers all the time and the customers tell us so.  Radio is loads of fun, but you need to invest in at least two years of slogging to get any traction. Newspapers are useless. Editorial is king. Get stories written about you in newspapers and magazine and you will see results. I'm lukewarm on social media.

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As a former business consultant I think you’ve accurately framed the marketing question and in doing so, given yourself the answer!  Lol

 

I really don’t think there is a fixed number answer. On the low end, some guerrilla marketing can be cheap and super effective (like glenlyons sandwich boards) On the high end mass media can be super expensive and moderately effective. 

 

By way of “answering” the question, I strongly feel that craft booze is 80% marketing, story and presentation.  With this in mind spending more money on marketing and less on product development should generate sales. 

 

A wise old business guy guy once told me “once your company has a successful product, all you really need to do is stay relevant by releasing one new product a year.”

 

thats my tack on our operation.  Maybe some of that is useful for yours. 

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Additionally, I would vote against investors. Anyone who has read my writing will know I don't much care for them. (Unless you are a big guy with millions and the eduction to know what you are doing.) So, I know, this advice is more often than not ignored. But, inevitably, tears are shed. If you need money - go to the bank, do the hard graft and be happier for it in the long run.

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The million dollar question! This is always a tough one because there are so many variables as others have mentioned and there's really no one size fits all. My best advice is to really sit down and plan out your marketing objectives and associated activities to reach those objectives. Just like you would with any other business goals. That's the only way to get an even remotely realistic number. We have two free resources related to this kind of work  (scroll about half-way down the page for access) from our Craft Alcohol Marketing Bootcamp bonus content that can help you think through this. You won't have the background course content for the full context and guidance without taking the courses, but the downloads have clear instructions to help you make some headway on your own if you have at least some understanding of marketing. One is a Marketing Budget Planning Exercise (with instructions for how to do it at a conceptual level if you're not quite at the stage to put hard numbers down just yet) and the other is a Paid Marketing Tactics Overview and Campaign Planner.

There are some general guidelines out there that for businesses 5 years or younger you should plan to spend 12-20% of your revenue (goals) on marketing and for businesses over 5 years old (assuming your hitting your revenue goals and are on track), plan to spend 5-15% of revenue. But I'm still a strong proponent of sitting down and doing the work for your business objectives vs. just using some random rule of thumb...especially since those are still pretty broad ranges.

One other tip. I always encourage craft makers to create their ideal marketing budget first - the one that would help you hit your goals the most effectively and on time - and then layer on reality after that to rightsize it. Starting from a scarcity mindset doesn't allow you to see the opportunities and growth potential you may be missing by not finding creative ways to invest more heavily where it makes sense. I'm not saying go crazy with a dream marketing budget...but do the "really, really, what would it take to hit these goals in the timeline I've lain out" budget. Then figure out how to fit it back into your reality, make tradeoffs with other resource investment areas where it makes sense, and then go back and adjust your goals/timeline with your newfound understanding of how underfunded your marketing will have to be, if that's the case. 

Hope some of this is helpful! This is just some of that foundational work that takes some real dedicated time and brain power to do right, but it will pay off for years to come and minimize marketing waste if you do it early and revisit it often. 

Suzanne

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My financing for my distillery came from another brand I market and sell with my father. We never spent a dime on marketing until we hit 80% market distribution. We have blown brand up to about a half million cases a year annually (12 pack 750 ml nine liter equivalents). Up 3% this year!

 

Didn't spend a dime on marketing until 80% distribution.

 

Purvey a stellar product. 

Leverage distribution network for coverage because you deserve it with your stellar product.

Protect your margins.

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On 12/13/2019 at 6:22 AM, SlickFloss said:

Didn't spend a dime on marketing until 80% distribution.

 

I think this is fantastic this strategy worked for you, but I would caution others that if you don't have good brand awareness or an engaged audience before you have distribution it's a risk and can lead to your product sitting on shelf with no one looking for it or interested. Which can then lead to delistings. Marketing today is most effective when you build relationships with your consumers, help them get to know you and become interested in your brand before you even have anything to sell. If all you're using marketing for is for sales messages or promos or to try to get them to take action and you don't have any longer standing relationship or value that you've been adding before that the money you do spend on that marketing can have ton of waste built in and not deliver the results you're hoping for.

A lot of the early-stage marketing to build relationships can be done for very low cost or even free so it's smart to put those efforts and activities in place long before you're ready to sell. Then when you are ready you have an engaged audience ready and willing. Distribution and distributors do not sell your product for you the majority of the time and counting on that is a mistake that really hurts a lot of craft makers. Back in the day when there were more distributors than makers this strategy worked more consistently, but today there are significantly more makers than distributors, they're spread to thin, and incentivized to push the brands who have good sales with minimal effort from them, not to put more effort in to try to gain sales. So the more you can do to create your own market and drive sales the harder your distribution will work for your brand.  I think our distribution pro, Ben Salisbury from Salisbury Creative would agree. Happy to chat with anyone interested in learning more on this topic or marketing in general.

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4 hours ago, The Crafty Cask said:

I think this is fantastic this strategy worked for you, but I would caution others that if you don't have good brand awareness or an engaged audience before you have distribution it's a risk and can lead to your product sitting on shelf with no one looking for it or interested. Which can then lead to delistings. Marketing today is most effective when you build relationships with your consumers, help them get to know you and become interested in your brand before you even have anything to sell. If all you're using marketing for is for sales messages or promos or to try to get them to take action and you don't have any longer standing relationship or value that you've been adding before that the money you do spend on that marketing can have ton of waste built in and not deliver the results you're hoping for.

A lot of the early-stage marketing to build relationships can be done for very low cost or even free so it's smart to put those efforts and activities in place long before you're ready to sell. Then when you are ready you have an engaged audience ready and willing. Distribution and distributors do not sell your product for you the majority of the time and counting on that is a mistake that really hurts a lot of craft makers. Back in the day when there were more distributors than makers this strategy worked more consistently, but today there are significantly more makers than distributors, they're spread to thin, and incentivized to push the brands who have good sales with minimal effort from them, not to put more effort in to try to gain sales. So the more you can do to create your own market and drive sales the harder your distribution will work for your brand.  I think our distribution pro, Ben Salisbury from Salisbury Creative would agree. Happy to chat with anyone interested in learning more on this topic or marketing in general.

I don't agree with everything you have written here. Distilleries go out of business every year utilizing strategies where they try to take on roles of distributor and effectively lose all sales power that a distribution network provides them. realistically you don't need a "sales staff" if you aren't managing multiple markets. if you think you do you're not managing the distributor appropriately. Your two boots are not the equivalent of their hundred + boots and preexisting person relationships in accounts. PROGRAM and manage distributors through whoever manages your brand in your distributor house. Educate distributor sales reps on how to sell your product, work with them and sell a ton of cases for them and prove the value of your brand to them and they might sell it. Their willingness is 1/2 the equation, an actually good product worth buying is the second half.....half the time craft quality is kinda garbage, that's okay [for now] thats why most of us are here [but this needs to change, thats why we're here].

The exception, not the rule, in the craft industry is people successfully programming distributors. That is why most craft producers are destined to flounder and fail. Perfect your product, learn the craft of distribution in your home state county etc market, and leverage the assets you have (distributor sales reps) to push your brands. You know who sells cases? Big Boys. You know who programs distributors? Big boys. Not all programming requires spiffs or money, you can get your due if you have a solid product that actually sells.

 

You can say whatever you want from your experience, Ben's experience, whoever's experience I cannot deny your claims of expertise. But no one can deny my over 5.7 MILLION 12 pk 9 liter equivalents.

 

 

Just my $.02. If anyone that is actually making marketing and selling their own products has any questions on distro holler at me I don't charge fees and give honest open feedback. Have tough skin if you hit me up I'm not here to baby anybody. We as an industry need to focus on winning mega corporate market share and not patting each others egos; so I take care to do that with all of my intentions. Even if that means they're not nice.

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19 hours ago, SlickFloss said:

We as an industry need to focus on winning mega corporate market share and not patting each others egos

Totally agree with that...rising tides lift all boats and we all need to help craft as an industry succeed and compete with larger corporations who are spending a ton educating (often wrongly since they're trying to convince them that they're craft as well) and marketing to consumers directly. You do need to educate your distributors and leverage their expertise and relationships, of course. I'm not advocating self-distribution (although sometimes it makes sense). But you also have to create consumer demand for your products so they move off the shelf. Distributors get you placements and support from retailers/bars/restaurants. Marketing generates consumer demand (and can help your accounts better understand and move your product on your behalf if you do it right) which is not the job or expertise of distributors. That was my point, sorry if it wasn't clear. 

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