Most business owners think of marketing as an expense because they keep writing checks for their marketing, but don’t see anything coming back in return.
The true entrepreneur knows that marketing is not an expense, it’s an investment. It’s an investment because for every marketing dollar that goes out, more money should be coming into the business.
So why is this true for some businesses and not others? Below are 10 tips of how to change your marketing mindset from that of an expense to that of an investment. By following these basic tips, you will change the way you think about marketing forever.
1. Spend more time producing income instead of reducing costs. I’ve known many businesses that spend their whole life trying to reduce costs just to make ends meet. This is an important aspect of business that can’t be ignored. However, if you cut your costs to the bare minimum to keep your business running you can probably only add 10-20% to your bottom line, but if you focus on increasing income your impact to your bottom line is almost endless.
2. Put 50% of your time, effort and investment into distribution and more importantly the other 50% into sales and marketing. Most businesses spend about 90% of their time on getting their product or service to the market place to serve their customers. This leaves only 10% of their time to focus on sales and marketing. This is because they are working in their comfort zone, this is what they are good at and what they know. To make real money in any business, you need to focus 50% of your time on distribution and 50% of your time on sales and marketing.
3. Marketing is an investment when you measure and test your results. When I ask business owners if they know where their leads are coming from they usually say, “Yes, we ask every customer where you heard about us.” I then respond by saying, “That’s great, can I see your data on your results?” They then inform me that they just have the information in their head. It is impossible to accurately measure this information in your head. To get a clear picture of what media, headline, and offer is working you must not only ask, “How did you find out about us?”, you must also record the results.
4. Buying customers is an investment so set your marketing budget by your acquisition costs. When you begin to understand that marketing is all about “buying customers” you begin to change the way you look at your advertising and marketing. If you understand the acquisition cost of your customer, then you can begin to create an unlimited marketing budget and buy as many customers as you want. The concept is simple, you spend $1000 on advertising, and you get 50 phone calls, then you are paying $20 per lead. Now if you close 20% or 1 out of 5 of those leads, you’re paying $100 (5x$20) per sale. Now, if your product sells for $200, you’ve just made $1000 (50 calls x 20% closing x $200 minus $1000 advertising). The only thing left to determine is, am I making more per customer than the acquisition cost?
5. Never chase market share, go after wallet share instead. In today’s business world, if you are a small or medium size business and you are focused on just market share you are in effect just chasing your tail. When you’re chasing market share, it’s based on the assumption that you are buying a product or service and then turning around and selling them to your customers. However, if your mindset is now on buying customers you are now focused on how much, how many, and for how long can you sell to each customer. We are moving from being product focused to being customer focused. The key here is customer loyalty. Always remember, it’s more profitable to sell to existing customers then to market to new ones.
6. Establish the long-term view of the value of your customers and their lifetime value. As we mentioned above it’s more profitable to sell to existing customers than to market to new ones. How much will your average customer spend over their lifetime? By establishing a long-term view of a value of your customer, you can begin to appreciate the importance and impact of good customer service and how costly poor customer service can be to your business.
7. Always aim to reduce your acquisition cost and raise your customer’s lifetime value. If we go back to our example above, our acquisition cost was $100. Now, if our product sold for $100 instead of $200, we would only be breaking even. The success of this campaign would have to be based on the long-term value of the customer. If our average customer will purchase from us on average 2x per month, we would now be making $200 per month from this client. Our goal now is to continually measure and test to decrease our acquisition cost by either getting our campaign to generate more leads or by increasing our conversion rate of lead to sale. Secondly, we need to implement strategies to get our customer to purchase from us more often and to shorten the time between each purchase.
8. We are in business to make a profit. You must determine the correct selling price for your product and service. If not, you will sell yourself into bankruptcy. Also, stop all advertising that is not working. Focus on reducing the acquisition costs of the advertising that is working.
9. Measure and Test everything. This is a simple but most overlooked strategy in business. Simply put, if you can’t measure it you can’t improve it.
10. Marketing is Math! By utilizing the simple formulas as mentioned above you will take the guess work out of your marketing and turn it from an expense into an investment.