Should I spend Money on Marketing?” Do the Math.
Photo by Karolina Grabowska
To be perfectly honest, math is not my forte. Yet I also know that math itself doesn’t lie. If you take four dollars and multiply that number by 15, you end up with 60 dollars. That’s the great thing about multipliers.
When it comes to the question of whether to spend money on marketing the question should be, “what is the expected return?” Sometimes I’ll hear, “Oh, I would never spend $X on marketing.” However, the decision maker should ask, “If I spend $X on marketing what can I expect for a return?”
Businesses are especially averse to spending money on Google Ads (Pay-per-click.) Oftentimes the reason for their concern is well-founded because many website agencies hide fees in the cost-per-click (CPC) charges or they fail to optimize the ads so the business pays pays more than necessary. The CPC is influenced by the quality score of the ads and how the ads and landing pages are created.
Our client recently spent $4,000 with Google for ads to promote their product. The result was product sales of $40,000. If we assume a profit margin of 20%, they will make a net profit of $4,000. If their profit margin is $30%, they will make a net profit of $8,000. A campaign management fee would also come out of the gross profit.
Imagine that the total dollars sold was $500,000 with a profit margin of 20%. The profit would have been $96,000. That’s a multiplier effect that makes a positive contribution to the bottom line. The missing element is the cost for the marketing agency to manage the ad campaign. If we assume the management fee is 20 percent of the media spend, the profit on the $500,000 goods sold is $96,000 minus $800 management fee or $95,200 net profit.
Search Engine Optimization
A better marketing investment is usually search engine optimization (SEO) because search engine optimization helps companies build equity in their website property. The monthly spend for SEO generally stays the same, while the volume of website traffic continues to grow.
Business owners need to begin to think of their websites like they think of a rental property. When a property is improved then higher rents can be charged and the apartment building owner has increased the value of that property. When it’s time to sell the property, they will have a history of increased rents and a property that is in great condition. They will have increased their equity in the property.
The creation of predictable recurring revenue from solid search engine optimization can provide greater returns when you go to sell your business. It’s one of the factors buyers use to determine the value of a business.
Flexibility of Digital Marketing
One of the difficulties with the direct mail industry, where I started before moving to the digital world, is that it’s challenging to measure the results of mailings. Just like Google Ads, direct mail is a one-shot effort with no equity. It’s hard to change direction when you have produced direct mail pieces that have been printed and collated for mailing. When I worked in the fulfillment division of a large direct mail company I received a phone call from our pharmaceutical client. The person on the other end of the phone asked me if the large volume of mail had left the building. I said that it was staged to mail but hadn’t been taken away by the post office. She said that any mail cages that weren’t on the mail dock and accepted by the postal authority on site (once accepted it became government property) were to be kept aside to await further instructions.
Later that day the instructions came, “destroy the mail!” The pharmaceutical company had a product the FDA said they could no longer sell to the public. Thousands of dollars in printing, production, and postage costs were consumed in a matter of minutes. Had that been a digital campaign labor would have been consumed, however postage dollars and de-collating costs would be avoided.
My wife is a math teacher and tutors children in math. She plays math games with students to help them to enjoy learning about math. To spend money on marketing that returns multiples of return is the kind of math I think we can all get behind and enjoy.