subject: The Big Secret Of More Profitable Marketing [print this page] Marketing can, and should be, one of the biggest expenses in your business month by month (if it isn't, then we need to talk about how you're investing in growing your business...). However for too many business the return they get for that monthly spend is 'variable' at best, more likely 'unknown' in practice.
The secret of being a truly effective and ultimately profitable marketer is to be crystal clear on the Return on Investment (ROI) you get from your marketing spend. As a responsible business owner your focus should always be on getting the maximum possible benefit from any money you spend and, despite all the hype and voodoo superstition that goes around, marketing is no different from any other part of your business.
In the simplest form, marketing boils down to the art of "buying profitable customers" - for every pound you spend on marketing you should be getting more than a pound back in profit. If you're not, your marketing plan is broken (or more likely missing...) and we need to fix this as soon as possible.
We'll talk elsewhere about understanding the true value of a customer to your business, and the ways you can improve this value, but here we are going to look at one of the easiest things you can do to dramatically improve the profitability of your marketing spend. Sounds dramatic doesn't it? But in reality it's really simple, 3 little steps:
1. measuring how your marketing is currently performing
2. find out which marketing strategies or ideas aren't profitable and stop them
3. find out which marketing strategies or ideas are producing profitable results and do more of them
There, told you it was simple...
STOP WASTING YOUR MONEY
We'll come back to the mechanics of how you do step 1 but in my experience its step 2 that most business owners seem to struggle with.
There seems to be an unwritten rule that every business has to be in the Yellow Pages, needs an expensive website, or must run weekly ads in the paper. And I am guessing there is no shortage of helpful sales people cold calling your business with "exciting opportunities for you to gain a lot more business" by spending money to advertise with them/buy their promotional items/pay for their marketing services, etc, etc, etc...
In practice one of the quickest things you can do to make your business more profitable is STOP WASTING MONEY ON MARKETING THAT DOESN'T WORK! Just stop it, take the money you would have spent and invest it in other strategies that are returning a profit.
It will feel like a big step to turn off some of some of your marketing but you can do it. Remember you can turn it back on later if you want to but if something isn't working your really need to stop it.
SO WHAT IS PROFITABLE?
Now let's get back to Step 1, how do we actually measure which marketing strategies are profitable?
Well there are 2 parts to this and we'll look at how we measure each then look at the important test.
What Are You Spending? The first part is to a real quantified feel for what you are currently spending on marketing. Here is how we do that:
1. Make a list of all the things you are currently doing to attract new business at the moment, write them out and keep the list to hand as I can almost guarantee you won't have put everything down the first time. Here are some memory prompts to help you:
a. The Usual Suspects: newspaper ads, yellow pages, leaflets, flyers, networking events, pay per click campaigns, etc
b. The Less Obvious: vehicle livery, branded work wear, your website, signage on your offices, promotional gifts, etc
c. The Usually Forgotten: gifts and thank you cards to customers, your regular newsletter.
2. Once you've got a good first pass of the list go through and put a financial amount against each one for what you have really spent on that in the last 6 -12 months. The best way to do this properly and thoroughly is to to go through all your old bills and statements to dig out the real amounts. I often find people underestimate these, or forget about a few additional payments. And as you go through the accounts you may well find other bits of marketing spend you had forgotten in your original list, so add them in and keep going.
3. Once you've got a total spend for each strategy break that down to a monthly average spend for each one. Any of those lines looking scarily big compared to what you thought you were spending?
WHAT IS IT BRINGING IN?
Then the next step is work out what all that spend actually brought in as additional business. To do this we take the list of strategies we just generated and turn that into a tick list or tally sheet. From now on we want to attribute every new bit of business we get to one of the strategies in the list, based on what prompted that customer to pick up the phone, walk through the door, email or whatever to get in touch with you.
For every new order you get, everything you sell, we want to be able to attribute that income to one of the strategies on your list, keep a tally and add them up at the end of each month.
If you are able to go back through historic orders and break them down by marketing strategy as well then that's great and gives us more data to work with, but if you can't do that no problem, start today, keep the records from now on as part of your routine business, and at the end of each month add up the totals and use them to review your marketing as described below.
IS IT WORTH IT?
Now the final step, the crunch point where we find out if you have been investing wisely in your marketing or wasting money on things that don't work either from habit or from lack of confidence to stop them.
So we have a list of strategies and we have a cost for each one. We know what we are spending.
We also have on the other side of the balance the income brought in by each strategy. Now income is revenue and what we are really interested in is profit so if we can we need to work out the actual gross profit from all this income strategy by strategy. How well you are able to do that will depend on how advanced you financial controls are in your business today:
- If you can break it down you Gross Profit precisely by product / service line then great, go ahead and do so.
- If you haven't got that kind of break down yet, but you've done enough work on the Growth Programme to know you average Gross Margin across the whole business then use that to calculate a Gross Profit for each strategy.
- If you haven't got that far and haven't got any figures for your typical Gross Margin yet then take a guess - if a customer spends 100 with you how much of that do you expect to keep on average? Guess if you have to but make it as good a guess as possible and use that.
Now the crunch, for each strategy you should be able to see how much you are spending and what its bringing in, so get your red pen out and let highlight the good, the bad and if you haven't stopped them already, the ugly:
- Any strategy where you are spending more than the gross profit its bringing in is unprofitable and should be a serious candidate for stopping as soon as possible. This is you buying pound coins for more than 1. Stop it, keep the money for yourself or invest it more sensibly in better strategies.
- Any strategy where you are spending less than the gross profit you are generating is profitable and you should look at doing more. This is you buying pound coins for less than 1. Once you know that how many do you want to buy? How can we turn up the volume and do more of this?
And that's it. It's not that complicated really. You just need to discipline to get the real figures out in black and white and review them on a regular basis.
Keep on top of your measurement and your Marketing can't help but be more profitable.
