Before you axe your marketing communications program, consider the fact that many large corporations have begun to treat marketing (advertising, promotions, public relations) as asset-building investments rather than an expense-based cost of doing business.
All businesses want to control cost. It’s a concern made more complicated when facing a long market downturn. And it is only natural that during a downturn we cut expenses where we can – from the workforce, from services and things that seem frivolous from the perspective of the bottom line. For many small to medium sized businesses, marketing frequently falls into that category; perhaps not “frivolous” per se, but definitely expendable.
Maybe the tchotchke convention giveaways look superfluous; in many cases they are, but what about your website, press releases, search engine visibility, collateral materials, your sales staff? I strongly advise caution; start with careful analysis and work your way through your budget carefully.
Begin by weighing the present value of your marketing program. Find the answer to these three questions:
- The value of each customer (per transaction)
- The value of your marketing outreach (per customer).
- Total value of your customers.
- The cost of reacquisition.
Value of your customer base. This is a basic calculation that all entrepreneurs and managers should perform regularly. Use a simple ‘sales basis’ method: divide the total number of completed transactions per year into the gross annual sales. Bingo. Value of base.
Value of your marketing outreach. Add up the total cost of your marketing program – website development, hosting charges, sales materials, advertising, public relations, et cetera – PLUS the cost of sales and support staff. Note that many companies exclude customer service from marketing because quality control is part of the manufacturing/design process. Take the total and divide it by the total number of completed transactions. Bingo again. Value of marketing outreach, per customer.
At this point, most people do the ‘old school’ thing and subtract marketing cost from sales to arrive at “actual” value. I believe that’s the wrong approach. Marketing is not an expendable – it must not fall into the same category of paper supplies or electricity. When many large corporations spend into marketing, they call it ‘investing’. Taking that idea further, it makes more sense to tally up the investment with the return (gross sales) to find the total value of the asset (the customer).
By merging marketing with the value of your customer base, you arrive at a clearer picture of the actual value of your customers; not only in terms of what they have purchased, but what you have invested to bring them to your business.
That brings us to the fourth question – the cost of reacquisition – which is tricky. There’s no ‘over the counter’ solution, no easy formula – no complicated algorithm (although I’d love to try and find one). You can’t merely pay a replacement cost as you would to replace a computer or piece of furniture. Replacing customers takes time AND money, which is compounded each day customers are not buying. Moreover, replacement cost increases AFTER the loss because you have to rebuild the brand promise, re-establish customer trust and re-establish the all-important positive attitudes and opinions that drew customers to you in the first place.
Can you surrender the convention pens with your name and URL? Probably. But look carefully before you cut anywhere else.