The next death by another little cut:
Having a Marketing Budget that Isn’t Based on Results
This is a conversation I had with a client who did an advertising campaign:
“We spent $11,000 on advertising and marketing and we only budgeted $5,000.”
“So?”
“That’s a lot of money to spend. I’m over budget.”
“How much revenue did you generate from the advertising?”
“More than $80,000 and we’re still getting sales.”
At this point he became really quiet. The light bulb went on. He realized that the advertising had worked and that the $11,000 was a great investment even though it was over budget.
My next question: “Are you going to do it again?”
“Yes, of course. Why wouldn’t I invest $11K to generate $80K? This is incredibly profitable for us.”
And yes, his profits more than covered the $11,000 he invested.
Many marketing companies don’t get it. They want you to invest in their social media, in their web design, etc. without a thought to the revenue and profit it should produce.
If a marketing company (or any other overhead related item) asks you to invest $10,000 a month on X, then determine how much revenue at break even needs to be generated to pay for that $10,000.
Here’s how you do it:
The amount spent divided by the gross margin of the department which will receive the benefit of that amount (or for smaller companies, the gross margin of the company).
In this example, assume a 40% gross margin. Investing $10,000 means that this marketing activity has to generate $25,000 a month to break even. Will the marketing company guarantee this? Probably not. But, at least you are putting them “on notice” that you will be tracking the results to ensure that you are generating the revenues you need to generate to break even on this expenditure.
Track your marketing results. If it is working, continue the marketing messages until they don’t produce enough profitable results.
Next week – the final little cut in this series.
Thanks again for reading Financially Fit Business. I appreciate you!
How financially fit is your business?
Click here to take this one-minute assessment.
Books/Audios that could help your business and you.
This is the perfect book for those of you who will make and KEEP your New Year’s Resolutions! James gives you some ideas that help you not only set, but also achieve your goals.
Click here to order on Amazon: Click here