Meadow CreekNews

Your Marketing ROI

Filed under Marketing, Small Business, Venture Capital and Start Ups on July 8, 2011

Launching a marketing campaign can create an exciting burst of creativity, excitement and enthusiasm. Every new campaign holds with it an anticipation of phenomenal business growth. The instinctive action is to pour your heart and soul into and make sure it’s done right. The old adage of “you have to spend money to make money” rings in your ears as you spare no expense to pull it off in style.

I hate to be a kill joy, but stop right there. You just can’t get away from the numbers. Before you invest a single dollar or minute of your precious time, let’s think it through first. Marketing is an investment and you don’t make the investment unless you expect to make a certain level of return.

Too often, the combination of enthusiasm and lack of experience can omit this important part of the analysis from the campaign. Add into the enthusiasm and lack of experience someone that isn’t paying the bills and there’s a real opportunity for trouble.

Many times there is a knee jerk reaction to manage a campaign the way you’ve done it before without any consideration of a change in the circumstances. Different business, markets, products, channels, price, cost and margins could very well have an impact on your marketing ROI if you even think that’s a relevant consideration. It is and they do, so let’s take a look at some of the critical thinking that should go into planning your next marketing campaign. This would include everything from new product development and launch to an ad for an existing product or an event to promote your product or service.

I’ll focus on simple promotional activities for the purpose of this article. Let’s assume, or better yet, leave new product development for another article. I was about to say that the expense and importance of something like the development of a new product would surely compel everyone to do the numbers first, but alas, I have too many examples of that going terribly wrong and at very large companies that prided themselves in financial discipline to boot.

Let’s say you want to hold a promotional event to highlight a new or existing product or service to your target market or maybe some key influencers in the market. Just as with an ad, there are some basic calculations to go through.

The number of potential people/businesses in the target market you can reach.

The percentage of that market you can reach that you will actually communicate with.

The percentage of those that hear your message that will be compelled to buy.

The cost of the campaign, including labor.

Your price, cost and margin of the product.

Your marketing investment.

Your marketing ROI.

Pretty straight forward stuff. The important thing for the savvy marketer to remember is that those percentages are pretty small. For instance, if you are a small business, you may feel pretty good about your email list. You have a thousand names and you’re going to invite a group of people to an event to promote a product. The average open rate is going to be in the neighborhood of 10 to 15 %. You send an email to 1,000 people and maybe 150 see it. If you are very lucky, 7 or 8 take action and come to your event. How many of them are going to buy? Let’s say 2 and go from there.

The first lesson is being real about the impact your solicitation for an event or ad is going to have. Marketing is a numbers game. The more people you can reach that qualify as legitimate targets, the more you will sell.

Next stop is conversion rate. By the way, I am purposefully avoiding as much of the internet marketing lingo as possible because the same measures apply to both on-line and off-line marketing. The fundamentals are the same. Whether we are taking about a newspaper ad, Google Adwords or an event, we want that promotional piece to be effective and increase the number of people that see it to take action.

You can do it by throwing money at it or being more creative or clever than the next guy. Conventional thinking is that the more you spend, the better the outcome. That’s not a particularly good mindset for small business owners. Be a Guerrilla Marketer and use unconventional techniques to accomplish the same task without spending more or even as much money.

The same is true with the event itself. The inexperienced marketer will want to go all out and impress the attendees with outrageous food and drink, entertainment and other non-essentials that can slowly, but surely drive the cost of your campaign through the roof. And don’t forget the hidden cost of the time spent on the project. Sure, you might have to pay some of the people involved anyway, but there might be far more productive ways of using their time than planning an over-the-top or just unnecessarily involved event. You want the product to out shine the event.

This is an iterative process. You don’t hit the sweet spot the first time. You need to work it a couple of times to see where you will get the best ROI on your campaign. There are trade-offs. Don’t let people move forward without a financial goal for the campaign. The uninitiated will proceed and perhaps give a budget of the incremental non-labor cost of putting a campaign together the way they see fit.

You want a budget that reflects all the cost and the expected return. You want to know what you’re getting for your money, your marketing ROI. Most marketers don’t like to operate this way. As an entrepreneur or small business owner, you probably don’t have the excess funds to throw around needlessly or for a low return. Your marketing budget has a limit. You need to make wise investments in marketing. You’re a realist and know that they are not all going to work out. Some will fall flat and other will amaze you, that’s why you need to have a portfolio of campaigns just like you’re with your IRA.

Don’t expect anyone campaign to be a home run. You’ll tend to be far more invested in the decision making if you take all claims with a grain of salt. A smart marketer will manage his portfolio of campaigns somewhat dispassionately and no when to cut his losses and when to put additional money into a campaign that works. That person will achieve the highest rate of return on their marketing investment and enjoy the opportunity to invest even more the next year.

Richard Gabel

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