When we look at our monthly accounts in our business, we check our sales, gross profits, and then our overheads before we come to our bottom line. In our drive to increase the bottom line results we often focus on our costs, to see how we can reduce them.
We check to see if we can get our phone costs down, can we get cheaper printing, can we find low cost contractors that do what our high price ones do now? All this is good business practice, ensuring that our hard earned gross profit is not lost in overhead blow-outs.
Finally, we get to our marketing line in the overheads. This could be advertising. It could be your website, promotional products or networking organisations costs.
Marketing budgets of 5-10% of sales are not at all unusual. However, there is a temptation to treat them the same way as your other costs. If profits are being squeezed, it is often the first area to get slashed, but marketing costs are different to other costs.
The purpose of your non-marketing costs is to produce the products and deliver your services to your customers. If you can reduce these costs without affecting your sales, that is increase your productivity, you should definitely do that, and see your profits increase.
If your marketing is working, and you reduce these costs, you will, instead, reduce your sales and your profits. Marketing is an investment which should be giving you a high return. Before you start reducing your marketing spend, you need to do some analysis.
- Look at how many customers your ads produce. What is the cost per lead, and cost per sale of your advertising?
- Do your thank you gifts generate repeat business and referrals?
- What business has your networking produced for you?
For each of your marketing activities, you must have a way of measuring results. You may find that some of your advertising works better than others. You have an opportunity either to improve the performance of the poorer advertising, perhaps by getting a copywriter, or dropping it and spending more where the advertising is working.
If the marketing is generating a healthy return, why would you try to save money by reducing it? If you cut successful marketing your sales loss will be larger than the cost saving. By all means, retire unsuccessful marketing that is not recovering its costs, but seek to replace it with higher return marketing.
How do you choose where to spend your marketing dollar? The answer is to test and measure everything. Only when you do that can you truly decide which of your marketing is a cost, and which is an investment.
May Your Business be as You Plan It!
Dr Greg Chapman
Over to You. What do You Think? Post Your Comments Below.
Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success.
The Australian Small Business Blog