Are You Overpaying?

Bet you know some other business owner that spends less than you on marketing, right? Go on, admit some jealousy…

Ever wonder how much you should be paying for all that marketing fluff? After spending 15 years in the industry, I want to spill the beans – ready?

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The answer is, there is no answer. More specifically, it’s interdependent on goals. The real key to all things business is goals – S M A R T GOALS.

S – specific

M – measurable

A – achievable & action-oriented

R – results-oriented

T – tangible & if possible, trackable

Let’s take a quick example: The first client sells online with an average markup of 40%, average order $45 (AOV). He has a wide selection of items and hopes that he can win over the customers with his amazing exclusive selection. The first step is to define the goal of his marketing – he wants customers, customers that love his brand and keep coming back for more. Being as such, if we calculate 40% of the $45 AOV, he’s making about $18/sale gross. Putting expenses aside, his break-even point would be to spend the entire $18 per sale to gain a new customer, or in other words, 100% of his gross revenue could be directed at marketing initiatives. Should he want to be aggressive and loose on the first 2 sales, we increase the percent of marketing contribution to $36/sale or 200% on the first sale.

Now the food for thought is, should this client be stuck with a misnomer that marketing cannot exceed 20% of his revenue, then he’d have only invested $3.60/sale, grossly limiting his ability to attract new customers.

Now, if in the above scenario there was little or no repeat business, the entire direction would shift dramatically and it would become incumbent to limit marketing spend to a percentage that would ensure net profitability.

Broad-stroke goals to think about – new customer acquisition, one-off sales, build a longstanding brand, prepare a business for resale, build a house email list, engage a social media community, increase brand exposure, etc. There are no right or wrong goals and therefore, there is no right or wrong amount to spend on marketing. In fact, you may find that different advertising venues offer multiple goals and for each goal a different allowable contribution to maximize results.

The moral: the only way to overpay is to ride blind. To be goal-less and not have a clear grasp on where you’re heading and how you’d like to get there. Don’t be limited by self-imposed blinders.

Ami can be reached at ami@cherristone.com