Your unbudget year: No marketing budget planned for 2017
Is this for real?
This is counter-intuitive to everything that you have been taught: establish a certain dollar amount you will spend this year, determine the media you will invest it in, take a deep breath, track the responses, and hope for great results.
But, what if you changed how you approached your marketing investment? Think of your investment dollars as an ever changing investment amount. Scary isn’t it?
What if you found something that worked really well, produced great profit results, and stopped because you had spent your entire marketing budget? Does that make sense?
Marcia Barnes, president and chief marketing officer of Sells Group (email@example.com) turned me on to this way of thinking. Her big thing, and she can back it up, is no marketing budget.
No marketing budget? For real? Yes. She advocates a spend budget, not a marketing budget, based on bottom line results. Ah, a kindred spirit with respect to bottom line profitability.
Here’s Marcia’s belief:
If you have a marketing budget, you will spend it, and not necessarily on the right things. If you have a spend budget, you test with a small marketing activity. If it works, then you put a larger amount of dollars in to get more results out.
Marcia tells the story of doing several tests that worked. She knew that if she invested $X there would be a positive, profitable result of $Y. After the tests, she asked the owner for $1 million. Yes, $1 million. He gulped and approved the investment. She was confident because she had done the tests and knew what the results were going to be. And she was right.
There are two key things that make the spend budget, rather than a marketing budget, work. First, you must track the results. Second, you must know your costs, both direct cost and overhead cost.
First, without tracking you have no way of knowing what the results are. Gut feel doesn’t cut it. I was at a meeting where the company had sent out spring tune up postcards. The owner of the company said that he thought that the postcards didn’t work because he hadn’t heard anyone talk to him about them. The technicians quickly disagreed, saying that the majority of the calls they went on for the past month were a result of those postcards. The owner was going on gut feel which was wrong. The postcards, attached to the service tickets, were proof that the marketing had worked.
You must track. If the telephone rings and you ask how the customer heard about you, the customer might say, “I found you online.”
That’s only part of the answer. Your follow up question must be, “What prompted you to search online?” Then you know which marketing piece actually caused that customer to call.
Second, know your numbers. How much are you spending to acquire a customer? What is your break-even point? For example, if you invest $1,000 and 10 customers respond, each generating $2,000, you’ve generated $20,000 in revenue from a $1,000 investment. That sounds great. But, what are the profits based on that $20,000 in revenue? Is it still a great thing to do?
My perspective is to know the revenue generated, and the costs of that revenue, both direct and overhead. Calculate your net profit on that revenue after overhead is subtracted. Don’t just look at direct costs, or worse, just look at revenue generated.
So, if you generate $20,000 and your net profit per customer is $200, then your bottom line will increase by $2,000. You’ve doubled your money. Your break even on that $1,000 investment is five customers - the $1,000 profit generated from the five customers equals the amount spent on marketing.
If each time you spend $1,000 you generate $2,000 in net profit, you would do this forever or until it stops working. The amount you invest may be much larger than your “marketing budget for the year.” However, you will reap much more profit than your original marketing budget predicted too.
The tricky decision is when you generate four customers or six customers instead of 10 customers. In this case, four customers shows a loss and six customers a slight profit. I suggest doing another test before making the decision to invest large dollars in this marketing project.
Don’t say, “We will spend $X marketing during 2017.” Depending on your test spend dollars and results, you might invest more or less.