You Might Be Wasting Most of Your Marketing Budget… Here’s Why

Point blank, if you are spending money on marketing you are doing it wrong. When you learn the smarter way to view your advertising budget, you’ll see instant results. (Don’t feel too bad, I’m a career marketer who only recently got himself together.)

Effective marketing dollars are not spent but invested. Let’s take a look at how viewing your budget that way will explode your growth.

Investment Based Marketing

Investment Based Marketing Generates Calculated Growth

The main goal in investing is to minimize your risk and maximize return. Doesn’t that sound like what you should be doing with your marketing budget?

The best analogy I’ve heard came from legendary copywriter Dan Kennedy, who said:

Your marketing should be a vending machine, not a slot machine.

With a slot machine you put money in, pull the lever and pray you end up with something good. One day you win big, and the next you lose your shirt.

With a vending machine, you know exactly what you want and how much it will cost in advance. It’s a repeatable process where you can dial up successful results consistently.

Let’s walk through how most companies are spending their marketing budgets. Then, we’ll talk about how marketing investments can apply to companies of any size.

Why Is Marketing an Investment?

I have two main arguments for why marketing is an investment.

#1. Good Marketing Creates Assets

All the things below are assets that can be valued and sold.

  • Your customer list
  • That brochure that you mail annually to bump revenue 20%
  • A website that generates a predictable stream of new clients

#2. You Should Spend As Much As You Can

With most expenses you want to keep your spending as low as possible without jeopardizing productivity.

Marketing doesn’t operate that way. If growth is important, your goal should be to spend as much as possible on lead generation marketing that is working.

Even once your returns start diminishing, you want to keep spending as long as the return has a positive ROI.

You should only stop spending when the return of that investment is negative, or lower than the return you can get elsewhere.

Think Like A Bank

Walk in the doors of a bank and say: I’m starting a new business. I need to borrow $15,000 to get started. Here’s what I plan on spending it on…

  • logo design [$1000]
  • create & print business cards [$200]
  • tri-fold brochures [$750]
  • put up a website [$1500]
  • embroidered polo shirts [$300]
  • rent an office [$1000/mo]
  • utilities [$300/mo]
  • furniture for office [$3000]

They will laugh you out of the front door. Well, they’ll probably escort you out kindly and laugh as soon as the door hits you in the…

bankIf you don’t already have a proven track record, what you’ve presented is a terrible investment. Yet, that’s how many of us start companies, and how we continue to run our businesses today. We spend money on things we consider necessary that have no direct link to growth.

You don’t need promotional items or office expenses to start and grow a business. All you need is something to sell and a customer who is willing to buy it.

For best results, ask yourself if a bank would loan you the money for whatever you’re planning on investing in. As a rule of thumb, if your opportunity doesn’t leverage (or borrow collateral from) current assets to generate growth, your loan has a high likelihood of being denied.

Start With Sales

I understand moving into that nice downtown office makes your business feel real. Guess what? Pulling checks from your mailbox makes it feel even more real than buying expensive conference room chairs.

At first, figuring out if people will buy what you sell is the only thing you should focus on.

Once you determine that people are willing to buy, your brand is built by delivering on their expectations.

It’s nice when people recognize your logo, but wouldn’t you prefer they recognize that your product is exactly what they’ve been looking for?

The Lean Startup methodology teaches that you don’t even need the product in hand at the beginning. You can save time and money by selling the idea of the product to see if potential clients will bite.

Have a more established business? These examples may sound like worrying about the spare change in your couch cushions, but don’t tune out. We’re about to scale the concept, and I promise it still applies to you.

Always Estimate Your Return

Every marketing or advertising dollar should be an investment tied to an expected return.

If you don’t determine what you expect, how will you know if what you did worked?

Track each investment and its associated return in a spreadsheet, so you can make decisions based on the numbers. Otherwise, it’s easy to be misled.

 

Consider these 2 Investments:

  1. You spent $1000, and brought in 50 clients
  2.  You spent $100 and brought in 10 clients

If you track your numbers, you’ll want to put as much money as possible into this second investment because it generated twice the return of investment #1.

If you didn’t track your numbers, investment #1 will likely feel more substantial because you were swamped dealing with the new growth. But, by putting more into investment #2 you’ll spend half the money to get the same results.

Next, you’ll want to compare the quality of clients that each marketing investment generates, but that’s an entirely new discussion that we’ll save for another day.

Measurement is Key

Most successful companies will tell you they’re plagued by the age old adage, “Half my marketing is working. I just don’t know which half.”

When you track your numbers in a spreadsheet, determining which half of your marketing is effective, and which to get rid of becomes more obvious.

Marketing Budeget Allocation Template

Make sure your download your copy of my Marketing Budget Allocation Template above. In time you’ll want to track more than just leads and converted clients, but it’s a great place to start. It helps me figure out what’s working and what isn’t.

[On a side note, I recommend tracking your personal budget and investment in a spreadsheet too. It helps you spot leaks and determine where you can reallocate for better returns.]

I define marketing as ‘selling in advance’, or ‘the process of making sales obsolete’. The objective of your marketing over time should be to have your clients persuading you that they’re the perfect fit for what you’re selling. Not the other way around.

Your customers will chase you down when what you offer is both desired and somewhat scarce. If your marketing mix is working properly, the scarcity will be natural. When you realize you don’t have time to work with everyone, you’ll choose clients and marketing methods that deliver the most value to your business.

Your effective marketing stack will likely include a variety of methods including less direct sales focused social engagement and PR. Those methods may not ‘feel salesy’, but make no mistake…

All of your marketing must be measured by what it contributes either directly, or indirectly to the bottom line.

Measuring StickJust because you aren’t paying for something, doesn’t mean it’s worthwhile. Inefficient marketing is often falsely justified by saying, “Eventually we’ll see results. For now we’re just building our brand”. There’s a chance that could be true, but chance and risk are generally what we’re trying to avoid.

It’s OK to put a portion of your budget into inherently risky opportunities with a big upside, as long as you have already allocated the rest of your budget to methods that will guarantee you reach your goals.

How to Allocate Your Marketing Budget

Start the allocation process by determining your sales goals.

Once you have your goals and a list of options you’d like to invest in, compare the estimated return of new methods to actual returns of current methods to determine where to invest going forward.

If you’re just getting started, everything will be an estimate. When possible, start small and once you’ve proven the rate of return is positive scale up. Don’t get into long term contracts before you prove that you can get that specific marketing method to work.

Also, move from specific advertising methods to general ones. If you know your target clients are members of an association, you’ll want to sponsor the association’s newsletter before you start putting up billboards on Main Street.

For a more established company, you’re A/B testing. Any new marketing investment should be pitted against a current one. If a new one performs better, it becomes the new status quo.

Always maximize your spend on investments with the best return, before moving on to the next best option.

In Conclusion – Re: Investment Based Marketing

Marketing doesn’t have to be an investment, but it should be. If you’re gambling with your marketing budget, you’re doing it wrong. If you can’t separate what’s working from what’s not, poor measurement is the culprit.

Use these three steps to put investment based marketing into practice at your company:

  1. Before you spend, ask “What is the expected return?”
  2. Create a spreadsheet to track expected and actual returns.
  3. If something worked well, DO IT AGAIN until it stops working.

Introducing: Thought Levels

When changing the way you think about something elevates your entire perspective, I call that a Thought Level. Occasionally, I share Thought Levels I’ve come across in business and life. The concept of Investment Based Marketing is a Thought Level for me.

If the Investment Based Marketing concept was a useful revelation for you too, sign up below and you’ll not only get my Marketing Budget Allocation Template, you’ll also be the first to receive other essential Thought Levels as soon as I share them.

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