What Percentage of Revenue Should You Allocate to Marketing?

In this clip, we're going to talk about what percentage of your revenue should you allocate to marketing. But before we do, if you're on YouTube, hit the subscribe button below and don't forget to hit the little bell button if you want to see more goodness like this. And whatever channel you're on, doesn't matter. Don't forget to follow because it helps us grow and it helps you grow as well. So let's talk about this. One of the recent videos that I did, I talked about how, uh, you look at companies like Valve, so gaming company, and Epic Games. So Epic Games is Fortnite and Valve is like Dota 2. So, That's one of the games and also Counter-Strike as well. I think it's Counter-Strike: Global Offensive now. Those are the games and then they put in $100 million into these prize pools each, right? So Fortnite, $100 million, $30 million for the Fortnite World Cup, but huge prize pools. What they basically do is they take a percentage of the revenue that they have coming in from gaming for a certain— maybe a bunch of people are buying like a pass each month, right? And they'll take 25% of that revenue And basically put it into their prize pools. So the story behind these prize pools, $100 million, like why would you spend $100 million on throwing an online gaming tournament? It doesn't make any sense, right? But it makes perfect sense because these types of events get billions of eyeballs on them. Okay? That's much, that's billions with a B. When you think about that, that is massive. The attention that you're getting is massive. So when these YouTube or Twitch streamers, where they have, when they shoot a video, they get 1.5 million views, 2 million views, they have 11 million subscribers or so. Everybody's talking about it. It's creating this feeding frenzy. You got companies like IMG Media who, who they run media for NFL, NASCAR, um, all these, you know, big events like the Open, right? Tennis as well. Um, Major League Soccer. So all this media is happening. You can watch it in the sky too. It's a major, major event. And then also when you're going to put up, it's headline grabbing when you say it's the largest prize pool in esports history, right? Or gaming history. A lot of press happens around it. So you got, you got a lot of eyeballs, you got more retention from the gamers, more people are discovering about it. Um, press is talking about it, it's being distributed everywhere. It is worth the money. Absolutely. So what they do is they dedicate 25% of the revenue for all that attention. Okay? That's what marketing is at the end of the day. You're getting the attention and you're bringing people to the point of sale. Now most people would say, here, I'll give you a standard answer if you want a standard answer. It's like, oh, you know, we allocate 15% of our, um, our, our revenue towards marketing. And that's a nice safe number. But if you are, it depends also if you want your business to be kind of, uh, you're, you're in maintaining mode, you're, you're fine with that. Great. But you have 2 different aspects when it comes to business. So you have a lifestyle business where you just want to cover your expenses. So that's totally fine. You can go live on the beach, kind of do whatever you want. You get that freedom right now. The next level, um, 2 different levels actually. So lifestyle, completely fine. And then you have like a growth business. So growth business might be a business like Uber, right? Uber, even though they're a publicly traded company right now, they, they're still losing money. Um, we're talking, they're losing hundreds of millions, billions of dollars, right? And then you have, uh, WeWork who's about to go public. I think they're, they're losing money too. All these companies are losing money. It's like, oh, that's not a good business, but that's not the point. They're not trying to hold right now. They're trying to be aggressive. They're trying to build their— it's a growth business. And so if you're trying to grow, sometimes your marketing, what we've seen with, with our clients at Single Grain, your marketing spend might be 30 or 40% or maybe, maybe even 50% of your revenue. It's very, very aggressive. But you know, if they have a huge war chest of cash, they'll be safe. They can maintain that level. So it's all about looking at the numbers and deciding what you want to do. If you look at the Shopify CEO, they're a publicly traded company now and he's worth $2.8 billion. But I think 11 years ago he was having trouble deciding whether he wanted to make a lifestyle business Or he wanted to make it a growth business. Growth sucks cash. Growth takes a lot of money. So if you're going to do growth, you're going to have to jack that 15% number up to 50% or, or, or you might even go more aggressive than that, right? Groupon, uh, used a lot of money. I mean, because they're paying like a percentage of revenue, uh, maybe 50% or so to their partners, that's marketing itself. That's sales. That also depends on your business model. Like where do you want to take your business? What's your business model and how comfortable are you with risk? And here's another thing I want to tell you with this too. Um, what percent should you allocate? So for me, I love risk. I'm all about risk. You know why? Because I gambled before, right? So I used to play poker. What I learned from that is I actually just read this thing on, on the information. Everyone's talking right now about inequality around the world, right? So I'm assuming you're watching this video, you're trying to get better, you want to grow faster. You don't want to have this whole inequality thing come up and catch you, right? So the number one thing to look out for when people are thinking about inequality, oh, it's technology, these technology companies are just eating everything up, or, oh, people are just smarter than me, or, you know, they work harder than me, or they have better habits than me. What I found was from that post and the information talks about inequality, I recommend you Google it. The number one thing that leads to inequality is risk capacity. So what does that mean exactly? So this, how does it tie back to all this stuff? The more amount of risk you can take for yourself, the better. Because if you just make one thing work, then you can take more risks, right? And what it might be catastrophic to someone else, where if you fail on something and you just keep taking risks, you keep taking risks, things become more and more successful. The billionaires out there, they can take more risks. What might be catastrophic to someone like an average person is a drop in the bucket to them. Doesn't hurt them at all. But they can just keep taking these risks over and over and over and it compounds, right? Knowledge, sure, you have an advantage for a little bit. And then also, with how hard you work or how smart you are, sure. But that also stops at a certain level too, right? So those are advantages, sure. But risk capacity is the biggest thing. And most people, most people are, they're a little risk averse. So how do you take risk for yourself? How do you increase your risk capacity to make it so you can spend more on marketing for yourself? And maybe your business model doesn't allow for that. Maybe it's a low margin business, whatever. But for me, like if I'm going to do something, I want to shoot for the stars. And for me, I feel like the biggest risk is not taking any risk at all. Mark Zuckerberg, okay? Came from him. All right, so I wanna go a little deeper on this topic, so check this out. What's the biggest risk you've taken so far in your business?

That's true, the hosting. That is probably one of the biggest risks. I lost a million bucks by the time I was 21, and the lady lied. She said she had cancer. She said she was getting evicted out of her home. I bought the home. I don't even know why I bought her a home. You know, she said she had cancer. I paid for the cancer treatment. I lost $1 million pretty much in something that's called cloud computing or cloud hosting. Didn't exist back then, but ideas are a dime a dozen, and I learned one important thing in life. Just because someone has a good idea doesn't mean it's going to work out. If you can't execute, it means shit. Seriously, everyone always comes to me all the time, I got this amazing idea. Well, you know what? Go and execute on it. And I lost money executing on something that I thought would have been big, but I picked the wrong partners. And I know a lot of you guys here have business partners. Keep in mind, if your partner can't complement you and do something different than you are doing, it's not going to be a good fit.

On my end, I mean, with Single Grain, this— most of you don't know that I actually took this company over about 3, 4 years ago. I'm not the original founder. Neil's cousin is actually the original founder. So when we originally were just an SEO company and when Google made the Penguin updates, basically our business started going into the tank because we were strictly focused on SEO. So we were in trouble. Our revenues were dropping, clients were churning left and right.

Believe it or not, Neil is actually one of the partners in the company and one of the other partners is also in the audience as well.

You know, for me, I naively decided to continue on And even when revenues were going down, the business was basically going to become insolvent. We're talking negative.

I told him to cut the losses too.

Yeah, he told me to give up.

So the guys who were running it, you know, the business was healthy, finances were mismanaged. And it was so poorly run financially that the company just went into the shitter. But the revenue was there. And with everything tanking with Google's algorithm updates as well, The cash in the bank wasn't healthy, but he kept pushing through it. Yeah.

So, you know, sometimes I have the naive optimism to power through it even though 4 other people, 4 other partners in the business don't believe in it.

So that was the biggest risk.

And but, you know, I mean, worst case scenario, I'd lose a couple years of my life, but it'll be a good learning experience.

I wanted to talk about what we got to learn from Scott Fritz. You know, entrepreneurs are builders. They're not people that like to be in the business They like to be thinking forward. They like to be moving ahead. That's what their core strengths are. A really important question he asked was, you know, how much money are you willing to give up for a year to never have to work again in your life? For me, it's— I've been doing this for the last couple years. I'm willing to give up as much as possible, continue to defer. Most of what we've been making in quote-unquote profit has been going back into the business. I just see that as investing in kind of people, continuing to build the team, double down, reinvest. The number one differentiator to kind of separate yourself from inequality is your risk capacity. You can do 15% if you want. For me, I don't like building a lifestyle business. I want to go for growth. This is why I guess I push my people so hard where sometimes they go crazy. If you have the risk tolerance, it doesn't matter because at a certain point you're going to become numb to failure and you're just like, haha, I failed. Okay, next thing, right? Where it's almost impossible to fail. Okay, so I'm not here to be a motivational speaker to you, by the way. But what I want you to do, let me know what you think in the comments below. What percentage of revenue should you be allocating for marketing? Check out the video over there, over there, okay? And if you're on YouTube, hit the subscribe button and then hit the bell button as well, 'cause you'll get notified. And don't forget to rate, review, subscribe, whatever channel you're on, and I'll see you tomorrow.