Is Marketing An Expense Or An Investment?
This week I had one of our smaller clients ask me to do an assessment of their marketing to determine the return on investment.
I gladly did this because I was excited to show how well things went.
After gathering all the numbers I put together my assessment.
The first thing that was a bit frustrating is the client didn’t keep good records of where the new customers were coming from and were reluctant to pay for extra call tracking numbers so we could do this. However, with some digging, I was able to get a pretty good idea where most of the new customers were coming from.
Here is the breakdown:
- 42% from referrals
- 19% from signage both building and mobile signs
- 17% from online search and ads
- 4% from print and direct mail
- 2% social media
The spend, however, was much different:
- 36% Print and direct mail
- 12% Online ads and SEO
- 8% Social Media (not ads)
- 1% Signage
- 8% Other
When looking at this there were a few things that stood out:
- There was a huge amount spent on print and direct mail for a pretty small portion of the results. Cost $22,000 for $33,000 return. (still a positive ROI) Much of this was direct mail in a form that we didn’t recommend but because they got “such a good deal” they decided to go ahead and do it anyway.
- The signage was definitely a good return on investment costing only $825 for approximately a $135,000 return. I recommended they keep doing this for sure.
- Online was second place with only a $7500 spend for a $124,000 return.
- Referrals were a little low based on what this client was spending on advertising. In my experience the more you spend on advertising the lower the % of your customers come from referrals. I recommended beefing up their referral program.
- Social Media was not producing quite the ROI we see from signage and online but still about a 2.5x ROI.
All in, this client only spent about $61,000 including our services for a measured return of over $410,000 not including referrals. For good measure let’s estimate they would have still got ½ of those customers if they had not spent a dime on advertising. (Unlikely because when they hired us they were on a downward spiral of new customer numbers) This means they spent $61,000 for a return of $205,000 or a 3.3x ROI.
I, of course, recommended they continue with the signs, online ads, SEO, social media and do something to improve their referral numbers while cutting back on what they spend on print and direct mail unless we were to change the way it was delivered.
The owner of the business saw it differently. He only saw the $61,000 as an expense and decided to cut all of their spending and go into a holding pattern with their website.
I think this was a big mistake. Marketing to me is NOT an expense unless you CAN’T show a return on investment. If you INVEST $1 and you measure that you get $3 back, then why wouldn’t you put more money into the things that are generating the highest ROI?
I would spend as much as possible until you start seeing a diminishing return.
Just my two cents worth.
Trent
At H-Cube Marketing we help you assess where you are at
and implement a custom marketing plan that gets results.