Readers of this blog, by and large, are marketing people. You understand that marketing is an investment that can pay significant returns. However, many of you report to non-marketing people who may regard marketing as an expense. This post is for you. It’s going to help you explain to your boss why investing in marketing is a really profitable idea.
Let’s do a little thought experiment.
Imagine a company that spends absolutely nothing on marketing. Now imagine another company that spends 100% of its revenue on marketing. Neither of these companies is going to be around for very long. The first company won’t have any marketing-related expenses, but they also won’t have much in the way of sales. The second company might get a lot of sales, but their marketing expenses will wipe out all their profits.
Obviously, these are extreme, hypothetical examples. However, as we move away from these opposing ends of the spectrum, we can create a picture that illustrates the “right” amount of marketing investment.
The point of increasing returns
Everyone understands the concept of the point of diminishing returns. It’s the point where spending more money begins to result in smaller and smaller gains. We don’t talk about it as often, but it stands to reason that there’s also a point of increasing returns.
Are you playing defense or offense?
Now let’s put some numbers on that curve and consider how it relates to ROI. As you can see, in this hypothetical example, an investment of $30,000 results in a return of $30,722. Increasing the investment to $32,500 yields a return of $49,248. A further increase to $35,000 results in a return of $74,057.
Calculating the ROI of these investments, we find that the $30,000 investment has an ROI of 2%. Pretty much a wash. This is what I consider “defensive marketing”. Defensive marketing doesn’t significantly increase sales; it simply gets an organization “in the game” and allows it to conduct business. At $32,500, the ROI increases substantially to 52%. Increasing the investment by another $2,500 more than doubles the ROI to 112%. At this point, the marketing effort has gone on “offense” by bringing in profits that significantly exceed the marketing expenses.
Here’s where things get really eye-opening. When we increased our hypothetical marketing investment from $30,000 to $32,500, the return increased by $18,526. The incremental ROI of that $2,500 increase was 741%. And it continues to get better. Our next $2,500 bump will increase the return by $24,810, which means its incremental ROI will be 992%!
So what does this mean?
Most digital marketing investments are scalable; we get to choose how much or how little of them we want to do, and how much we want to spend to do them well. This is true of SEO, pay-per-click advertising, social media, blogging, and video. Similarly, if you’ve been through a website redesign, you know that costs can range from less than $10,000 to well over $100,000. It all depends on what you want to accomplish and how important marketing is to the overall success of your business.
The point of this exercise is to illustrate how important it is to invest the right amount of money in your marketing efforts. As the graphs above show, a small increase in your investment can have a dramatic effect on your ROI. On a related note, we can also see how important it is to invest in the right number of marketing tactics. Spreading our investments thinly across a large number of tactics keeps us down on the defensive part of the ROI curve. Instead, we should focus on a core set of integrated marketing tactics and invest enough resources in them to go on the offensive.
Putting it into practice – with a caveat
I have a dilemma. I want this post to contain some practical application advice. At the same time, I don’t want to get too “salesy”. So, if you get what I’m saying and you have a clear idea for how to put it into practice, stop reading right here.
I’m going to be real frank with those of you who are still reading. Too many of us settle for defensive marketing, especially when it comes to our websites. I’ve been guilty of it myself. A website build or re-build is a major undertaking, and it usually costs a sizable chunk of our marketing budgets. We get a lot of pressure from the well-meaning holders of the purse-strings, so we try to keep the cost to a minimum. But when we do that, we end up with a website that doesn’t do a good enough job at attracting traffic, creating a favorable brand impression, giving visitors a really good experience, and making it easy and rewarding for them to take a step forward in the buying process.
So here’s my advice to you: use this article as a tool to demonstrate the value and the necessity for things like search engine marketing, digital advertising, user testing, social media, and content marketing. Although these things add cost to your marketing budget, they will quickly accelerate your results up the steep part of the ROI curve. Ultimately, those results will help your fiscally-responsible stakeholders understand and appreciate how marketing truly is an investment that helps increase your profits, not just an expense that diminishes them.