How Much Should You Spend On Advertising Your Building Company?

This number is the holy grail of business.

When you crack this code, there is no limit to the size you can grow a building company to…

How much do you spend on advertising your building company?

Is it a dollar figure or a percentage?

If it’s a percentage, is it three percent of the annual revenue?  

Maybe it's more...but most likely it's less.

Low Advertising Spend Translates To Low Margins

After talking to a lot of owners of small custom home building companies, it seems with many of them who are doing $3 million a year or less on sales, that it's almost considered a ‘badge of honour’ to spend under $10,000 a year on advertising...and in some cases nothing at all! 

And unfortunately, many of the building companies that haven’t been investing in their marketing or regularly spending money on advertising, are now signing up plenty of building contracts, but at LOW margins! 

Low margins that will come back to haunt them as the year progresses and the cost of labour and materials increases due to supply and demand.

There are really two big problems that emerge as a consequence of not investing enough money in marketing and advertising..

If you haven't budgeted enough for advertising, then you're either going to end up spending that money somewhere you shouldn't, OR, you are NOT going to be charging the margins that you need to be charging in order to grow your business safely and securely.

Advertising Investment Generates Demand

Let me give you some context... 

Let's assume the industry benchmark for net profit for custom home builders is 10% of their revenue.

Let's also assume that the industry standard for advertising, not including marketing costs, for those custom home builders is 4%, but you have only budgeted 1%. 

In theory, you should be able to achieve a 13% net profit now because the savings you made on marketing will drop straight through to your bottom line. 

However, that never happens in business…

Because the investment you make in advertising is what generates the demand for your services which first of all, allows you to hit your revenue target which maintains your total fixed expenses below the 15% benchmark...

And secondly, the demand you are generating allows you to command the industry standard benchmark for gross profit, which is….25% MARGIN.

And that is not to be confused with markup which equates to 33.3%.

Now for those of you that are not investing 3, 4 or even 5% of your revenue into advertising your building companies, you probably just fell off your chair laughing at the thought of marking up a $750,000 job at 33%, I mean who does that?

Well, I’ll tell you who is doing it right now. 

It’s the builders who are making annual sales of $6 million, $10 million, or $20 million plus a year that are doing it…

And that means they are producing net profits of $600,000 to $2 million a year on top of their market salary…which is substantial.

A lot of builders that haven’t reached those heights have no idea that those margins are even possible, however we’ve seen the evidence, so I can tell you, that is what you need to be working towards.

There Is No Silver Bullet In Business

Now, if you don’t have a website with a clear unique selling proposition, or a blog with over 20 informative articles, or an email strategy that keeps your brand top of mind, or a Facebook strategy that builds awareness, or a Google Ads strategy that attracts the active buyers...then no, you are not suddenly going to be able to go from a 20% markup that produces 1% of true net profit a year, to 33% markup that produces a double-digit net profit…

Because unfortunately there is no silver bullet, it takes a lot of hard work…

Which is a good thing, because that is the very thing that separates the top 4% of residential builders from the chasing pack who are all competing on price...

So, step one…

Get clear on your point of difference and make that your own unique selling proposition…

Develop your marketing messages…

Update your website to include the fundamentals…

Create a blog stacked with interesting, useful information…

Build out a follow-up email strategy that runs continually to every lead you’ve ever had that is not disqualified…

Amplify your content on Facebook…

And generate hot, educated leads by using Google Ads!

Now, a lot of builders believe that advertising and marketing is an expense. And like I mentioned before, they believe that by reducing their expenses they have increased their profits…

But it doesn't work like that.

Advertising Is An Investment In Margins 

At worst, advertising is a cost of sale, because the more you spend, the more revenue you generate. So rather than being a direct expense, it’s actually a direct cost...just like the cost of materials to build a home. The more you spend on materials the more houses you can build...I know that’s a bit simplistic, but you get the point right?

However, the really successful builders, the ones that have scaled their building companies to $10 million and beyond...profitably of course, don’t look at advertising as an expense or even as a cost of sale…

For those guys, advertising is an investment.

An investment in margins.

You see, when we look at the data across many building companies in Australia, New Zealand, Canada and the United States, one thing stands out above everything else...

The more a building company spends on marketing and advertising, the higher their margins. 

And not just gross margins either, their net margins. Which means even though they are investing more money than their competition, they are still managing to generate higher net margins.

Marketing is an investment in margins.

It takes some builders years to learn that, but when they do that, they start to make real money from their building companies.

Take Veronica for instance, she recently shared with our members that the most recent jobs for her building company had come from social media marketing which led to winning two fabulous jobs within three months.

What do you think Veronica meant by fabulous?

Increased margins...that’s a 25% markup they’ve added. So, still a little bit further to go with those margins but that’s a lot better than they were previously achieving.

“Our most recent jobs have come from social media marketing. This led to winning two fabulous jobs within three months.”

So that is how much you should spend on advertising your building company.

If you’d like to discover some more tips on how to master the marketing process for a residential building company, check out our latest book, Professional Builders Secrets.

Inside you’ll discover how to generate more quality leads, and convert more of those leads into sales at higher margins while improving the client experience.

Click on the special link below to receive your free copy.