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Last week we tackled the question “I don’t know the right amount to spend on marketing or how much I should expect to get in return” by explaining the theory of Customer Lifetime Value combined with Marketing Return On Investment and Backward Planning.

If you missed it, email us for a copy.

However, I predict that my proposition will be met by some resistance in the shape of enquiring questioning!

As mentioned last week, I expect that your questions will be:

1) Why not just do telemarketing and forget everything else; it’s the best!?

2) And while I’m at it, why not just spend millions on telemarketing and retire very young and very rich!

3) Or why not just do all of them; it’s all profit, however small, right?

4) Why don’t people get better at marketing instead of worrying about the returns all the time?

5) What if I haven’t even started so I have nothing to base my figures on; what do I do next?

Or as a bonus question: you’re having me on, it isn’t this easy is it?!

 

ANSWERS!

So without further ado, I will address each question in turn:

“Why not just do telemarketing and forget everything else; it’s the best!?”

It appears logical to assume that, if telemarketing gives you the best return (in our fictional example of a Print Shop) then you should do telemarketing to the exclusion of everything else.

However, while it may appear logical it is inadvisable for the vast majority of businesses. First and foremost, you don’t actually know if telemarketing is the best performing marketing campaign; just the best of the ones you have tried. The chances are that you haven’t tried all appropriate and available marketing strategies and hence you could be missing out on something even better.

To widen this point, it is actually much more effective to have a number of effective marketing strategies; and not just one. This is for a number of reasons, not least of which is in the event that The Chosen Single Strategy decreases in effectiveness, is restricted or banned (for instance, by a change in law) or somebody copies you (and believe me, your competitors will very quickly ‘borrow’ when it looks like it’s working). If this happens, your marketing performance will be much reduced or wiped out completely.

However, have a suite of effective marketing strategies and you have an insurance policy against any issues with one single strategy. To use a crude example, which business is stronger: X business with 10 effective marketing strategies or Y business with just one?

And finally, I should point out that many businesses would not even get to the point of assuming that telemarketing alone should be conducted as a means of promotion; because they do not record their marketing performance and sales conversion rates, not to mentioned Customer Lifetime Value, accurately enough to make solid conclusions!

 

“And while I’m at it, why not just spend millions on telemarketing and retire very young and very rich!”

First and foremost, you probably don’t have a spare million or two! So you can’t, obviously. Some big businesses do have millions to spend and they do indeed spend millions on one single marketing strategy. However, in respect of the above point, they don’t only spend on a single strategy; they spend tens of millions (or more in some cases) on a suite of marketing strategies.

Another financial point is the issue of cash flow. Even if a marketing strategy gives you a very positive return in terms of Customer Lifetime Value, it of course takes the full lifetime of the customer to receive this income. And hence if you do receive £10 back for every £1 spent on telemarketing and your customers stay around for ten years, it takes a full 12 months to recoup the initial £1 spent and then another 12 months to make another £1 profit.

This is NOT a reason to stop such marketing activities, but it is a reason to (a) limit expenditure as part of a cash flow plan and (b) look for other marketing strategies to use in combination, some of which may recoup funds faster. Most successful businesses actually mix high yield long-term (in terms of cash flow return) strategies and smaller yield short-term strategies.

Another important point is that you may exhaust the potential of a single marketing strategy if you continue to spend on it. This is more common than you may imagine. While it depends on your target market size, and is thus more likely to affect niche businesses, it is true that do too much of a good thing and soon enough all the good will be gone. A little like the goldmine not lasting forever…

Of course, all of this assumes that you can spend your entire business budget on marketing in order to gain a return. However, you of course have to fund other activities, such as team development, operational improvements, R&D, and crucially dividends as your shareholders (even if that is just you!) most likely need to gain a good income from the business on an ongoing basis.

 

“Or why not just do all of them; it’s all profit, however small, right?”

On the surface, this argument seems as logical as the first point. However, while a return is a return is a return, not all returns are equal and very low returns exacerbate the above issues. For instance, the radio campaign example used in last week’s article returned £5,000 for every £4,500 expended. This is a very small return in exchange for a consuming a large amount of cash flow.

Moreover, it presents a large amount of risk for small rewards. For example, if one campaign only draws a blank (it happens on even the best of campaigns) it will take a further 10 campaigns (at the usual £500 profit) to break even again. Compare this to the telemarketing example, which offers a £10 return on every £1 spent, and a ‘bad day’ doesn’t have the same impact.

So this is really a question of balance over a certain yes or no. As I said in last week’s article, generally speaking anything up to 25% is excellent but over and above this point, optimisation becomes important in order to be sustainable in the long-term. Which leads us to our next point.

 

“Why don’t people get better at marketing instead of worrying about the returns all the time?”

Of course we should focus on optimisation not matter how good the return on investment is. For instance, the telemarketing example may be good at 10% cost but with continuous improvement it could be 5% which is obviously better.

However, while perfectly possible it isn’t easy to gain the aforesaid 5% improvement. Which means that a lot of hard work is required to make the radio advertising example better by 5%; yet this will only mean that is very ineffective at 85% (over 90%) cost. So for exactly the same reasons explained above in respect of consuming resources, we must be careful not to invest in every available marketing strategy in the hope that it will improve.

Of course, this assumes that you pay sufficient attention to the return on investment figures on a weekly or monthly basis. You must do this and we will be exploring this topic in more detail later in this series, including following process (referenced in my forthcoming book) PIOM:

Pilot, Improve, Optimise and Maximise

Remember this tactic as we will return to this in a few weeks’ time.

 

“What if I haven’t even started so I have nothing to base my figures on, what do I do next?”

This is a very good question and one that we will answer in full and fantastic detail in Challenge #5. I will introduce a number of marketing strategies – 20 in total – and explain a little about each strategy, the pros and cons, the likely costs and returns and for what type of business it is suitable for (i.e. if it will work for you or not). So keep reading!

 

“Or as a bonus question: you’re having me on, it isn’t this easy is it?”

Yes and no. It is this simple, in theory. But in practice, it is much harder. So it is simple but not easy! It is perfectly possible but it takes time, investment, commitment and resolve. It will be worth it in the end but it does come at a price in the early stages.

Remember, if it was all plain sailing then every business would be doing it (due to the lack of resistance) and thus it would stop working: as not every business can be a leader. By the very nature of competitive business, there has to be winners and losers. Some businesses just have to do better than others.

The winners are those who follow the guidance in each weekly edition and thus gain an advantage. Most business do not do this. They worry about running the business, not developing the business. And hence how you become a winner and they lose over time.

So now it’s time to push home your advantage and implement the strategies presented in this mini series.

And look forward to move next week!





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