I Want MoneyPosted by Richard Dannenberg on Jun 26, 2013 in Small Business Marketing | Comments Off on I Want Money
Last week’s blog post (see Hat Management 101) took a long, kind of disjointed trip from Dr. Seuss to Ray Charles. The intent was to explore the problem of why marketing frequently falls off of the small business agenda and to begin making the case for a marketing plan. I identified 4 primary reasons why marketing tasks are so easy to ignore:
- Marketing requires creativity.
- Marketing requires time.
- Results aren’t always easy to measure.
- Marketing costs money.
Ray Charles Again
Let’s pickup there. As I wrote last week about point #4, the old Ray Charles song “Greenbacks” was playing in my head. I even came up with this great little image of Ray on a dollar bill. Turns out Ray wrote a couple of songs about cash. This week, I’m hearing the other one, “Money.” My favorite verse goes like this:
Your lovin’ gives me such a thrill
But your lovin’ won’t pay my bills
I want money (that’s what I want)
Before going any further with the “how to” of creating a marketing plan, it’s a good idea to talk a little more about the “why” question. You really ought to be able to guess the answer by now. Last week’s message was for business owners who can’t seem to make time. This week’s blog is for those who are wasting time and money by marketing the wrong message. They need perspective.
You may have lots of genuine enthusiasm about your business and you may love to talk about it. Your marketing message comes from these warm, fuzzy emotions, but that won’t pay the bills if no one is interested. Take a tip from Ray. Focus on the money.
Marketing as an Investment
Many small business owners tend to look at the marketing budget as a necessary evil. It’s necessary, because the money has to be spent to “get the word out.” It’s evil because it’s a cost, impact is difficult to measure, and the money could always be used elsewhere. We’re going to talk a lot more about measurement later on, but it’s important to get this message over first. Marketing is not a cost. It’s a quantifiable investment. If it doesn’t make money, something’s wrong.
Marketing Efficiency: A basic math lesson
In physics, efficiency is the ratio of output to input. As an example, this measure can be used to express the energy wasted in the production of something. The number is always less than 1, indicating that the method of production is inefficient – energy is lost to friction or heat and more energy is required to make a product than may be contained in it. When it comes to marketing, this kind of result is an obvious failure. If you spend more money to market a product than the revenue you receive from it, you’re losing ground and you’ll quickly be out of business.
Marketing efficiency relates directly to profits. It’s the ratio of profits (output) to marketing dollars spent (input). Although it’s conceivable that profits could be less than marketing dollars spent, the result should usually be greater than 1. As an example, if you spend $50 to market a widget that produces $100 in profit, your marketing efficiency is 2. If it costs $150 to produce the $100 profit, your marketing efficiency is .66 and you may not be making enough on the product to make it worthwhile.
That’s a simple exercise, but let’s talk about something useful. What if you could increase marketing efficiency without increasing the amount of money spent? What would happen? Using the first example above, if you increase the efficiency number from 2 to 3, a marketing investment of $50 produces an additional $50 in profit. Few would argue that having $150 is not better than having $100. Ray Charles is right.
A different perspective
This simple evaluation can lead us to a rather large shift in perspective. Rather than looking at marketing as a necessary cost, it’s far more useful to consider it as an investment with a measurable return. That return is profit. Like an investment strategy, a marketing strategy should be designed to maximize profits. From the example above, we see that efficient strategies maximize profits. From a standpoint of costs, this shifts the perspective from “how much” is spent to “how” it’s spent, but there’s more to it than that. Marketing strategies and tactics should be designed with efficiency in mind and ultimately measures should relate directly to profits. Tactics that produce more profit per unit cost should be preferred over those that are less efficient.
What are the practical implications? The warm, fuzzy message might need to be changed. Some of the old advertising channels may need to be discarded. In family businesses, the sacred attachment to “the way my daddy did it” probably needs to disappear. Old ways might be comfortable, but they also could be wasting a great deal of money.
That doesn’t necessarily mean that you have to sell the herd and start over from scratch, though. Putting together an efficient marketing program is not an exact science . . . it involves some trial and error. The best place to start is to take a long look at what you’re doing now and to begin to evaluate each component of the strategy for effectiveness. Does it help to meet a goal? Does it contribute to profit?
What do you think?
So, this week we’ve gone from Ray Charles to Brahma bulls and we’ve wound up about where we started. The best context for measuring marketing efficiency is the framework of a marketing plan. Next week we’ll talk about goals, the first step in constructing a strategic marketing plan. Here are a few questions to provoke some further consideration and hopefully a few comments, too . . . What do you think?
- Are marketing results dependent only on the money spent?
- Are there other measures of marketing efficiency?
- Are there “sacred cows” in your marketing program that need some examination?
The Last Part
DP Marketing Services is a new business that provides assistance with marketing planning and implementation for small businesses. We’re available to help you with organization and with specific projects. We hope you’ll take a look through our website and let us know if you’d like to discuss your business or a project you’re considering. No risk – the first 2 hours are free. If you’d like to get in touch, please call Richard Dannenberg at 478-719-4029, email to firstname.lastname@example.org, or fill out a contact form here on the website.
*Photo attribution: John Hill, Wikipedia Commons