In response to the new budget announcement, small businesses will now be able to claim a tax deduction in purchases below $20,000 upfront. So, this lead us to think, what exactly would $20,000 buy you in digital marketing?
“Hang on a second”, you say? So, “what did we do before this announcement to claim on websites”?
Previously you were only allowed to claim an outright deduction of $1,000 on websites. What did that mean? Well, from the $1,000 expense, this will reduce your taxable income, and for a company that represents 30% tax on profits. So we’ve gone from a $300 benefit to a $6,000 benefit.
Now, what could you get for $1,000?
Well, not that much in Australia. But let’s not stop reading here.
Beyond a simple Adwords landing page, or a small website mobile conversion, $1,000 doesn’t stretch that far for a full project scope.
So, if you were to push a bit harder and say go over that threshold, you’d need to claim that cost over four years. More here on going over the $1,000 threshold for small businesses in Australia.
So let’s get some real world example going here.
What does $20,000 buy a startup?
Let’s give this a name: “MunieMunch”
Let’s say you’re in startup phase, and have done the proper customer development, identified your target market, and done your number crunching on the size of the market. (Well done!)
Ok, now MunieMunch needs a new SaaS website, which has a great user experience, and keeps the customers rolling in.
Great! We’ll we’re going to need to scope that out.
- 1 x budget for scoping that out
You’re most likely going to need a designer
- 1 x awesome designer
And to make that design really pop you may need a UX professional
- 1 x UX designer
Actually you’re a bootstrapped startup, so lets scrap the UX guy for now
1 x UX designer
Add a splash of branding, to give it a voice and value proposition
- Branding / marketing consultation time
And the all important development, remember it’s gotta be a responsive website too
Now you’re on you’re way.
So 3-6 months later, you’ve invested $20,000+ and you still need to market yourself. Ouch!! Ads sound expensive! Though you’ve got your foundation, your app, your system & hopefully a product / market fit.
Result: Yep, easy to rack up a $20,000+ bill
What does $20,000 buy an established small business?
Ah, I’m glad you asked!
Small businesses usually already have a website (tick), they already have some branding (tick) although only a few of them usually know their key differentiators, their life time value, and what they’re willing to spend to find a new customer.
And, lets call this small business: GlassMission
Yep, you guessed it – a glass repair company.
So GlassMission have kindly filled out our online marketing assessment questionnaire and we’ve discovered the following
- Average conversion rate is 3.5%
- Average sale is worth $300.00
- Average gross profit margin is 50%
So after doing some research
And after doing some competitor stalking, we find there’s a lot of opportunity to grab attention through paid SEM, i.e. Adwords.
What does $20,000 buy you in Adwords?
Why SEM? Something like Adwords is quick & easy to set up, and although you’re ‘renting’ the traffic, it’s a good starting phase for a small business to test the water of digital marketing, and discover their KPI’s.
For math’s sake, lets make the following assumptions:
- 1000 visitors per month
- 3.5% conversion rate
- 70% of leads convert to sales
- Each sale is worth $300
- Each sale has a 50% gross profit margin
From here we can use the conversion calculator – get your copy at the end of this post – to calculate how many leads will flow through the sales funnel.
The 24.5 sales per month equal $7,350 in revenue, and $3675 in profit.
This means to break even, on the gross profit margin, we can’t spend more than $3675 per month on acquisition costs. Average CPC’s of $2.50 in this industry make it possible to reach this result and provide a 110% ROI.
How does this compare to SEO?
So everyone’s heard of SEO. That dodgy telephone call asking for ‘The website owner’ at odd hours of the night.
But there’s a honest truth in well executed SEO. Make pages for users, not search engines.
So, we’ll kill two birds with one stone, and make your website better for users, plus get some more traffic
So how do we make it useful?
Useful content in short is
- Publishing case studies, white papers, and authority content
- Writing a blog (making it something people will read too)
- Encouraging user-generated content (yep, those comments below)
- Creating useful applications or tools
- Running a Q&A section
- Posting interviews
We can also help users by making it feature rich
- Great inner linking
- Referencing other website content
- Using the correct mark-up language
- Ensuring it’s easy to read on mobile devices
- Making sure it loads fast
- Making sure it adheres to web standard
- And about a billion more things…
The list above isn’t just for elaboration, it is also some of the things we test in a website audit
So what can GlassMission get for a $20,000 investment in SEO?
SEO will enjoy a long term benefit when done correctly, although will need some maintenance along the way.
GlassMission is just 1 store in a particularly competitive market, although they have the opportunity to target corporate glass replacement in the Sydney area. A website audit and SEO strategy reveals that there is a lot of opportunity in long tail keywords (wordy search queries) and the best way to approach this is a mixture of website architecture, content marketing & social media.
GlassMission opts for a conservative $20,000 investment spread over 12 months, of which the effect will resonate for years to come. In comparison to Adwords they can expect a slower start, but a more secure future.
So what about fixing conversions on the website?
Part of calculating the return on investment for marketing spend is your conversion rate.
Conversion rate = number of visitors / the ones that buy
In the above examples, we’ve discussed a conversion rate of 3.5%
The thing to note, is that they can differ wildly from channel to channel, and device to device.
So the aim here is to study that conversion rate, and find ways to increase it
What can be done?
First, lets discuss the process
- Set up the funnels (OMNITURE, KISSmetrics, Google Analytics)
- Analyse behaviour (Clicktale, Crazyegg, LuckyOrange)
- Find the barriers (Qualaroo, Olark, SurveyMonkey)
- Ask around (salespeople, testimonials)
- Explore marketing campaign ideas (Sales, Bundles, Giveaways)
- Fine-tune your USP (Unique selling point)
- Wireframe your solution (UXPin, Balsamiq)
- Set up tests (Unbounce, Optimizely, VWO)
- Rinse & repeat
When you’ve completed those steps your goals will be to
- Reduce the bounce rate
- Track micro-conversions
- Increase sales / leads
- Increase repeat business / customer advocacy
The ultimate goal is to obtain a higher conversion rate without spending an extra cent on marketing acquisition costs. For instance, after a couple of tests the original conversion rate of 3.5% could increase to 5.0%.
A 5.0% conversion rate is only a marginal difference in percentage, although represents going from 35 leads to 55 leads a month, which takes their ROI from 110% x in Adwords to to 215%, which adds $44,100 in annualised revenue.
What effect does the budget announcement have on me?
We’ve discussed how the Government will now allow up to $20,000 worth of purchases to be immediately deducted and therefore reduce your taxable income.
This leave you with the choice of whether you spend that money on new equipment, tools, a big TV for the office, or maybe your online marketing?
Although the tax rule doesn’t allow people to claim investments, todays marketing is an investment into your business, and the benefits can be astronomical.