8 August 2018

Is Marketing An Unnecessary Business Cost?

ROI
Lucy Hogarth
Written by Lucy Hogarth

Lucy Hogarth is the Co-Founder of The Marketing Centre and specialises in working with small and mid-size businesses. She has over 25 years’ experience working in clients and marketing agencies focussing on retail, telecoms, construction and financial services.

We’ve already looked at lead generation (and how it’s not the be all and end all of marketing) and big ideas (which are useless without informed predictions to back them up).

In the latest instalment of Marketing Mythbusters we’re looking at one of the biggest misconceptions around - Return on Investment. To put it bluntly: too many business leaders believe marketing is nothing but a cost, an expense that doesn’t pay off in real terms.

What is the myth?

Many business feel they need some sort of marketing activity in order to keep up with their competitors - but they’re unsure of what value marketing actually provides for their business, in terms of raw marketing ROI. As such, it feels like an expense, and often and unnecessary one.

The reason? It does cost money, and it can be expensive. First comes the marketing director’s wage, and maybe a marketing manager’s too. Then factor in spend on third parties - content creators, SEO consultants, brand designers, researchers, PR and whatever else - and the bill grows. Then think about CRMs (Customer Relationship Management systems), website redesigns, event stands and pay-per-click advertising, and the expenditure can add up.

But it’s not a cost, not really. If you can’t trace a direct line from spend to profit, it does feel like a waste. But when you can accurately measure the results, it becomes clear what marketing really is: an investment in the future growth of the business.

The truth

The Austrian economist Peter Drucker claimed, “there are only two things in a business that make money - innovation and marketing. Everything else is a cost.”

We’re not going that far - but we do see marketing as an investment, something that should earn more than you spend.

Often, business owners think they’ve cut their marketing spend: but in reality they’ve done nothing of the sort. We’ve spoken to MDs who claim they’ve grown businesses without spending a penny on marketing, only to discover that they’ve invested £100k on their website, their sales team are very active on social media and they’re sure to use the keywords that attract Google’s roving eyes. Marketing is more than just brochures and flyers - it’s everything you do to bring a customer into your business and everything you do to keep them there.

Even after you’ve understood that, however, it’s easy to lose sight of what your marketing spend is actually doing for you, in concrete terms of money out and money in.

Marketing consultants and agencies often lean on ‘vanity stats’ to justify their work. “Oh, it’s a great campaign,” they say, “we’ve had twelve million impressions, two thousand shares and five rave reviews,” and “we’ve entered it for an award!”

Unless you can link this to an increase in profits, however, none of it really matters. What justifies your marketing spend is the measurable impact of marketing activity on your bottom line. You must have goals in place, based on your strategy, and metrics to measure against those goals.

If you have business targets, you have to decide what hitting those targets is worth to you. The thought process shouldn’t centre around the cost of marketing at all - it’s about value. The first conversation you have with your marketing director should be about what success looks like, in terms of your bottom line, and what investment is necessary to get there. If they’re talking about social, digital, tactics and stats before they’ve established what you’re trying to achieve together, they’re talking myths.

That initial conversation helps you define your ROI, in the only terms that matter: interested prospects converted into paying customers. How much does it cost to convert each customer, and how much does each customer spend during their time with you?

You can work your way back along the acquisition process to set budgets for each element of your marketing machine. How many leads need to be generated for each sale you make? How many contacts need to be gathered for each lead you generate? How much web traffic needs to be gathered to secure that many contacts? Now you’re out in the realm of specific activities: you know how much a piece of web content will cost, and how it will go about paying off. That’s how you prove that your marketing spend is bringing the crucial return on investment - and that’s how you know it’s not money down the drain.

marketing mythbusters guide

Take a look at our Marketing 360 to see all the ways marketing supports a business - and our case studies to see how it works in practice.

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