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Why marketing is a wise investment rather than a cost

Owl sat on money depicting a wise investment

Marketing is a key business function for every successful business around the world.  That is a fact.  So why in “SME world” do many businesses choose not to invest in marketing?  It seems counter-intuitive, yet sadly it is the case. 

It is for the simple reason that, through a lack of understanding of what marketing actually is, many SME business owners see marketing as a cost, rather than an inward investment.   This article explains why this is a classic mistake.

What is a marketing function and what should marketing do for you?

Before we get into the detail of why marketing should be viewed as an inward investment, lets just consider the purpose of a marketing department or marketing function.

This is where many SMEs go wrong, as they view marketing as an “output” of the business, rather than a function.

Marketing is not all about catchy brand names, creative literature, advertising, digital campaigns and supporting a sales function.  Yes, all of these things fall within marketing’s remit, but this is merely scratching the surface.

Marketing is fundamentally about how you position your business, how your offering is defined, building defined target audiences and delivering them a series of products and services which meet and exceed their needs over a sustained period of time.  What’s more you want those audiences to become brand ambassadors which starts to organically grow a wider customer base – and profitable sales growth.

When you start to think of marketing in these terms, you can see why it is a fundamental business function for any organisation of any size.

This doesn’t mean you have to have an internal marketing department.  There are a variety of options in how you plug this gap.  But you do need to take marketing seriously.  Marketing is not the “colouring-in department”.  It is one area of your business which could make or break it – depending on whether you get it right!

Why every business should be viewing marketing as an investment?

Yet still, even considering all this,  marketing is commonly viewed at most companies as an expense on the P&L account.

When a manufacturer invests in a new piece of kit for the factory it is accounted for as a Capex spend.  It is viewed as an investment in being able to make more money (in this case make a great volume or variety of things quicker).

Wise marketing investment does a similar thing.    It also enables you to make more money – only through attracting and servicing the right calibre of clients.

Close up of a Return key on a keyboard

5 Key ways marketing investment is a no-brainer

#1 As a function, marketing should always be delivering a positive ROI

We have already explored that marketing is a huge discipline which covers many different areas, but ultimately your total marketing investment should always be delivering a positive return on investment.

For every £100 you spend on marketing you want to be aiming to generate around at least £500 in profit.  This is not to say that this will immediately happen, it won’t.  There is a bedding period of testing and measuring carefully to ensure that you are spending you marketing budget in those areas which are going to deliver the best returns.

There will also be some elements of your marketing budget which won’t have directly measureable returns.  For example, if you decide to sponsor local sports teams – you are unlikely to see a direct return on investment.  However, as part of building up goodwill and a brand profile in your local community, it may prove invaluable and contribute to the overall performance of the brand awareness of the business.

However, if taking into account all marketing spend, you have invested £75K in marketing and it has only delivered £50K in profits – something is wrong.   With this in mind always make sure you are tracking your KPIs within the business – otherwise you could be wasting money year on year (and not even know it)!

#2 It avoids spending money on speaking to the wrong people

When you approach marketing more strategically one of the key elements is clearly defining who your core target customers are.  What segments of the marketplace are most likely to purchase your products and services – and ultimately deliver the highest levels of profits.

Once you know who these are, you can focus all your energies in speaking to these people and stop wasting money on communications that are putting your brand in front of the wrong types of people/prospects.

Again, imagine you have a £100K marketing budget and you have no idea who your target audience are and you spend all of your budget speaking to everyone.  In reality only 5-10% of that total audience may ever be a customer of yours. 

If you knew how to identify this 5-10% then you can spend the whole £100K on speaking to the right people more often, or reduce your spend down and avoid spending £90K on targeting the wrong people!

Customers entering the sales funnel

#3 Effective marketing campaigns deliver better conversion rates

By having clarity around your target audience and taking the time to understand them at a more-deeper level, you can suddenly create marketing campaigns that are far more effective and deliver much higher conversion rates.

If you know who to talk to, what messages are going to resonate, what channels are the best method of reaching them, when the timing is right and what buttons to press (in terms of the right call to action), then you will see you conversion rates for any given campaign improve immeasurably.  

Ultimately this links back to number 1 – your return on investment will increase substantially.

#4 Helps to understand, segment and potentially rationalise the business offering

One area of marketing which regularly gets overlooked is the importance it plays in terms of analysing and measuring performance of your product and service offering.

Many businesses evolve over time and add different products and services over time that they see as revenue making opportunities.  However revenue doesn’t always translate directly into profit.

A clear understanding of your competitive positioning and your target audiences can start to help you in understanding and segmenting your product offering.

You need to know your margins and how your product and service offering differ in terms or profitability.  A good marketeer will help you identify which products or services maybe creating unnecessary “noise” and impacting the profitability of the business.  They will also spot potential opportunities to upgrade your offering to add more profitable service streams.

#5 It maximises the potential value of every customer

Marketing’s work is not done when a sale is completed.  The first mission is complete, but now the real work starts.

Once a customer is on-board it is marketing’s role to extract as much value and deliver as much benefit as it can to that customer over their lifetime with the business.

This involves upselling, cross-selling, improving retention rates, added-value tie-ins and referral opportunities.

If you get your marketing right you should see your average customer annual profit value climb year-on-year.  And remember, once they are an existing customer, there is no acquisition cost – so the return on investment from marketing spend increases.

So when is the right time to invest in marketing?

The day a business is started is the day to start investing in marketing.  Without the right customers buying the right products, there isn’t really a viable long-term business.

However, when talking about “investing” in marketing we are not just talking about money.  You can “invest” in marketing without spending much money, but you need to spend time focussing on it.

If you are starting out in business and want to gain greater clarity around how to approach marketing then upskill yourself.  There are courses available such as “Strategic Marketing Mastery”, which can help you set off in the right direction.

If you have some funds set aside, or you are a more established SME, you may want to engage with a marketing professional who can advise you or even recruit someone within the business.

Many businesses can reach a reasonable size and make a decent living without really investing in marketing, however there is always going to be a clear limit to what they can achieve.

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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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