For as long as I’ve been in business, I know that it pays to invest. As one of the fundamental aspects of a successful business strategy, discovering what is the optimal amount to spend on marketing is something I am very familiar with. As a digital growth and revenue specialist, I encourage SME owners to define their target market, understand scalability and develop the right skills because I know that investing in these can save many businesses from making costly mistakes.
Most marketing budgets are created with feelings or egos. People feel that they should invest, based on what seems comfortable spending. Alternatively, this decision can mirror the spending habits of another individual, or what amount may beat the market. In all my years of consulting businesses, I can honestly say that there are perhaps five companies that have had an objective-driven budget or approach to marketing expenditure in place. I observed that this approach can quickly lead to failure as the decisions are based on the wrong metrics.
You must also know what you or your business can afford to pay to attract a customer and what you actually pay or should expect to pay to attract a customer. Most businesses don’t know what their current CAC (customer acquisition cost) average is. This number could simply be equal to the profit you earn on the average customer. You need to know what you can afford to pay to acquire a customer whilst making any investment activity viable.
However, this isn’t straightforward for everyone. If you sell $20 parts with a customer coming back for several years, you would struggle to justify paying $150 to acquire that customer. It would make sense if the net over three years was $3500. If you paid $200 to acquire a customer and are only making a $10 profit, you would experience a company costing or business model issue. These are the kinds of conversations you have to have with yourself and your business partners. You must also know what you expect to earn from a customer and the total amount of revenue, profit, sales and customers you or your business want to generate.
Another issue with marketing is scalability. Once you find a win, scale it as fast as you can to reap the reward. Every unit a business scales can be compounded to create a significantly larger output. The growth journey of a company is rarely linear so you must understand how to capitalise on your marketing efforts.
I believe that a company requires the right people, technology and processes to create marketing success, but know that most small businesses don’t possess the resources or appetite to hire senior marketing and sales leaders. Skills every business leader should develop to make effective decisions for marketing and sales performance include setting growth strategies, defining customers, selecting marketing channels to implement and scale, and marketing and sales investment planning.
I, like many others, read about business success stories daily, and am aware that the opportunities created by the digital landscape are widely known. However, all of this has created unrealistic expectations regarding marketing and I always warn against this silver bullet. Marketing systems have to be developed, innovated and built by investing your own time, energy and capital. They are an extension of your business and can help amplify a message worth amplifying. Staying focused on your fundamentals is key, knowing only then that digital tricks may then magnify your results.