Estimating Your HVAC Digital Marketing Budget
Navigating the complex world of digital marketing can be a challenging task, especially for HVAC companies that may be more focused on technical services than online advertising. Yet, with the increasing digitalization of commerce and customer acquisition, having an effective digital marketing strategy is certainly crucial.
One of the first steps to crafting that strategy is determining your budget.
But how much should you set aside for marketing activities?
In this comprehensive guide, we share our process of how we recommend estimating your HVAC digital advertising budget.
The truth is our process is not so much about the budget itself, but about one fundamental element:
Determining your monthly goals.
In other words…
You know you need to advertise online, but what are you actually trying to get in return?
We try to arrive at these estimates with logic and with your input.
Goal-setting will help you determine your budget, and more importantly, it will create guardrails around your marketing efforts.
How Much Do HVAC Companies Spend on Digital Marketing?
If you want to bypass the entire article and just have the quickest estimate possible, most home services contractors invest 5-10% of their revenue in digital advertising.
So if your company’s yearly revenue is $2M, you will likely set aside anywhere from $100,000 to $200,000 in advertising dollars.
But a marketing budget is not a one size fits all solution.
There are several factors that play a role: Seasonality, your thirst and capacity for growth, internal company goals, and your markup on certain services, among others.
So let’s take a more calculated approach to estimate your budget.
The End Goal is To Reach Your Desired ROI, Not To Calculate An Exact and Rigid Budget
Before we delve into our process, let’s just reinforce this concept:
The primary function of your advertising campaigns is to generate revenue.
Therefore, the ultimate goal is to hit your desired Return on Investment, not to be so rigid with a pre-determined advertising budget.
The formula for ROI is as follows:
ROI = (Revenue – Advertising Spend) / Advertising Spend.
For instance, if a company spends $1,000 on a marketing campaign and earns $1,500 in revenue directly from that campaign, the net profit would be $500. Using the formula above, the ROI would be:
ROI = ($500 / $1,000) / $500 = 50%
This means that for every dollar invested in the campaign, the company gained a return of 50 cents.
With that in mind, let’s lay the groundwork by estimating a realistic advertising budget.
Start by Setting Up Guardrails: What is the Maximum You Can Pay for a Lead Before Losing Money?
That would be your Breakeven Cost per Lead.
Breakeven CPL = (Average Order Value – Operating Expenses) / Lead to Deal Close Rate
Calculate the maximum you can spend on acquiring a lead to break even.
This is only a starting point to measure the effectiveness of your current marketing efforts and helps inform future decisions, such as a starting advertising budget.
- Average Order Value: The average amount of money spent by customers in a single transaction or order.
- Operating Expenses: The cost incurred to operate the HVAC Service Call or New Installation service.
- Lead to Deal Closing Rate: This is the percentage of leads that turn into actual customers. Not every lead will convert to a sale, so knowing this rate is critical.
- The maximum you can pay per lead to remain profitable.
Breakeven Cost per Lead
At a minimum, your digital strategy should always beat this number.
Example: “ABC HVAC Inc” has an Average Order Value of $500 per service call.
The cost to operate each call is $150, and 30% of their phone calls turn into actual service calls.
Their leads must be under $105 to remain profitable.
*Also note that Depending on your end goal, the Average Order Value can be interchangeable with your Customer Lifetime Value.
Here’s a scenario where you may be better off with the Average Order Value: You are determining your Breakeven Cost per Lead for your HVAC Installs digital marketing campaign. In theory, the transaction of a new HVAC Install is a one-time transaction, and therefore, you are better off estimating the AOV of your HVAC installs.
Here’s a different scenario where you may be better off calculating with your Customer Lifetime Value: You are determining your Breakeven Cost per Lead for your Heating & Cooling repair calls, and many of your customers tend to have several service calls with you throughout the years, or perhaps they’re part of your maintenance program.
We get it!
Breaking even is far from exciting.
But these guardrails are meant to protect your bottom line.
Now that you know the maximum you can afford to pay for lead, let’s set some targets.
- Target CPL: What is the maximum amount you are willing to pay per lead?
- Target Monthly Leads: How many leads a month are you seeking? Remember, not every lead is a paying customer, so lean on your lead-to-deal closing rate to determine your desired volume.
- The result would be your suggested advertising budget to reach your monthly goals.
Estimate Your Advertising Budget
This the advertising budget needed to generate your desired number of leads.
Example: To generate 400 leads, at $60 each, “ABC’s” advertising budget should be $24,000 per month.
What is their ROI?
ABC’s Average Order Value is $500, and they generated 120 service calls in one month.
Their monthly revenue was $60,000.
They spent $24,000 on advertising.
ABC’s net profit for the month was $36,000, and its return on investment was 150%.
Where Should You Allocate Your Digital Advertising Budget?
When it comes to allocating your company’s digital advertising budget, it’s essential to prioritize strategies that yield the best results. By focusing on the most effective marketing channels, you can maximize your return on investment and generate quality leads. In this article, we will explore some key recommendations for budget allocation and discuss popular marketing strategies for HVAC contractors.
- Tap Into Your Low-Hanging Fruits: Our first recommendation is to go after the low-hanging fruits that may not even use $1 from your advertising budget. These are simple web optimizations you can make, enabling a customer texting line, and improving your local presence and customer reviews.
- Search Engine Optimization (SEO): SEO is crucial for HVAC contractors to improve their organic visibility in search engine results. This can be a long-term play, but over time it will yield “free” traffic which will help you decrease your overall cost-per-lead.
- Local SEO: Connect with potential customers in your service area. Ensure your business information is accurate and consistent across online directories, create a Google My Business listing, and encourage customers to leave reviews.
- Google Ads: Running Google Ads can be an effective way to capture immediate attention and generate leads. Set up targeted campaigns based on relevant keywords, geographic location, and specific services you offer. By carefully optimizing your ads and monitoring their performance, you can drive targeted traffic to your website and increase the likelihood of conversions. Unlike SEO, Google Ads can yield results within the same day, but your advertising budget must be carefully managed or you may be at peril of acquiring leads over your breakeven CPL.
- Email Marketing: Have you built a list of past customers and prospects? If so, send regular newsletters, promotions, and updates to keep your HVAC services top of mind. Personalize your emails, provide valuable and seasonal content, and include calls-to-action that drive recipients to take the desired actions, such as scheduling maintenance or seeking a quote.
- Social Media Marketing: Utilize social media platforms to engage with your audience, showcase your expertise, and promote your HVAC services. Share informative content, maintenance tips, customer testimonials, and industry news. Encourage interactions, respond to inquiries, and build relationships with potential customers. Platforms like Facebook, Instagram, and LinkedIn can be particularly effective for reaching your target audience.
As we reach the conclusion of this guide, it’s clear that devising an effective HVAC digital marketing budget is not only crucial but also complex. It demands a unique blend of expertise in digital advertising dynamics, an understanding of HVAC industry trends, and the ability to align these strategies with your business objectives.
While you could venture into this intricate process independently, partnering with professionals can help streamline your journey, saving you valuable time and resources. As your HVAC marketing agency, we leverage years of industry knowledge and innovative strategies to help home services businesses like yours flourish.
Consider taking the next step with us – let’s transform your digital marketing initiatives into tangible business growth. After all, your success is our success. Contact us today to learn more about how we can help you make the most out of your digital advertising budget.
