Avoiding the 5 Classic ROI Pitfalls

Marketing is an area of business that is widely misunderstood.  If you ask 100 small business owners what “marketing” means to them, you will get a plethora of different answers that range from advertising, selling, branding, “make you look good”, PR, social media, websites and Google – and you will probably get the odd one or two who will say that “marketing is all about making me more money”.

Ultimately, the only reason people spend money on marketing, is to make more money (or it should be).  If the money you are investing is not getting you a positive return – then your marketing is failing you.  So, the bottom line is that marketing is all about return-on-investment (ROI).

So what are the pitfalls that typically most companies fall foul of when it comes to their small business marketing budgets and its ROI performance?  Here are the five most common ones that we come across…

  •  Make sure that you understand the figures in your business. In order to track the ROI from any marketing spend you need to know your product/service margins, enquiry conversion rates, cost per enquiry and cost per acquisition.  If you don’t know how to find these out or track these then you are fighting a losing battle.  You will never really know an accurate ROI figure.
  • Don’t measure turnover, measure profit. A classic error is when companies track their returns based on the sales value they generated.  This is wrong as you need to track the profit generated.  You have basically taken an amount of cash out of the profits of the company to invest in marketing, so you need to track how much profit gets taken back in (and it needs to be more than you took out!)
  • Don’t get too hung up on image rather than results (it should be substance over style). Remember marketing is all about making money, not looking good or winning awards on vanity campaigns.  Don’t be sucked into being “sold the spin”.  Always ask what the anticipated returns are going to be/need to be and how they are going to be evidenced.  I have seen plenty of marketing campaigns that both look good and gets results – they don’t need to be exclusive of each other (unfortunately they just often are).
  • Make sure you (or your suppliers) have the mechanisms to track performance. Unless you are a multi-talented business Jedi, there is a good chance that you will be using third party suppliers to help you with different elements of your marketing strategy.  Make sure that they understand you are all about results and probe them to ensure that they have the mechanisms and knowhow on how to track the ROI of their work.  If they haven’t asked you anything about margins, repeat values and enquiry conversion rates – then you know they really don’t care about your returns.
  • Don’t ignore future values – it is not always a one hit wonder! Often ROI can get underreported because only the initial sale is considered. This is wrong, as they may then purchase again or refer your business to others, or upgrade etc.  This is why it helps to know the averages, because if the average lifetime profit value of a client is £10K you don’t necessarily want to measure the success of a campaign from their first transaction which has brought in £300 profit.  You may want to go one step further and segment your client base so you can sort your Chesney Hawkes (one-hit wonders) from your Rolling Stones.

We know all of these sound logical and obvious, but you will be amazed how many businesses reinvest their hard-earned profits in marketing their company and then don’t bother to even track whether it has generated positive results.  Those that do, that test and measure and tweak, are the ones whose marketing returns will be fuelling rapid growth!

If you would like to discuss this topic with one of our marketing consultants in more detail please get in contact with us and your nearest marketing specialist can give you a call.

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Ian is the founder of Opportunity Marketing marketing, with over 18 years of experience in successfully setting up marketing departments, creating marketing strategies and implementing these strategies across a wide number of SME companies in both the B2B and B2C sectors through a variety of channels.

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