When is money spent on marketing?
Can you spend money on marketing as a newly started company? Should you really spend money on advertising in times of recession? And do you really have to market your business when the store goes well?
Many companies make a mistake by looking at a market budget as a cost — and, with most other costs, they also look for opportunities to cut costs here.
In fact, the money companies spend on marketing is an investment. If one starts to acknowledge that marketing is just an investment in new customers and increased revenues through measurable channels, it will be easier to answer the questions I asked above.
Investing in marketing as a newly started company is an effective way to show your target group that your product exists. Investing in marketing in declining times is an effective way to buy market shares at a good price. Online shops that sell them that hacked much can always invest in reaching new customer groups. What about making the life-time value of existing customers even higher?
It's all about selecting the channels that are profitable for your company and about the measurability of the activities you perform.
Know what you want to achieve
To set a suitable market budget, you are completely dependent on knowing what goals you have. You should be clear what you want to achieve with the money you are going to invest in marketing before you invest them.
Do you want to reach new customers? Does your brand know about it? Make more of the visitors complete a purchase? Maybe you'll steal market shares from your competitors. Is the goal of reaching target groups that do not already use the type of product or service you offer?
Paint everything you do
To know if you are achieving the goals you set for marketing, you depend on placing your message in channels you can track the effect of. This is the very basis for digital marketing. You yourself or The Agency you are cooperating with should be fanatic about tracing all market activities. There should be no doubt whether a campaign has been profitable or not. What has a click on your ad in Google Ads cost you? What has a purchase through Facebook The cost? And how many times did the customer click on your ad before they bought it?
What is a customer or a purchase worth for you?
When you know the value of a purchase, or even better, the customer's lifetime value, you know how much you can spend on “buying” a new customer. This makes it easier to determine the budget in the different channels. Knowing the lifetime value of a customer relationship opens up many more possibilities for advertising than looking at cost per acquisition. Therefore, having a steel control on this could be a strong competitive advantage.
You lose money in the way you put your market budget
Many companies have good assumptions for success by measuring the impact of market activities and by reviewing the life-time value of customers. Despite this, they hamper their own growth by putting wrong market budgets.
Many companies operate with fixed market budgets. For example, it might look like this:
- A flat budget each year, distributed evenly beyond each month
- A flat budget each year, distributed differently over each month depending on the seasonality of the market or the results of the previous month
A little bit banal and simplified we can say that companies that control their market budgets in this way lose money.
If 1000 kroner notes were on sale at 100 kroner. How many had you bought? The answer is probably that you had purchased as many as you could afford.
A company that comes across this offer and has decided to spend only 1000 kroner a month will miss out on ten thousand of the dollars with such a set market budget.
In theory, this seems simple. Nevertheless, there is a principle that most companies are able to transfer to the market budget. If you know what a new customer is worth for you, you will earn the most of the customers you can afford at any time.
If you can earn $10 for each crown you use, any new customer or purchase in principle “money at a discount”.
How to set your market budget
The irony of how to put a market budget is not to set a (fixed) budget. Flexible market budgets based on set KPIs give you great freedom to achieve the goals you set for your marketing. There are several ways to find KPIs to manage your flexible market budget. Two examples follow.
CPA or ROAS based market budget
CPA, cost per aquisition, says something about the cost of a single sale. If you sell a product or a fixed price service, it may be useful for your company to operate with this type of goal when setting market budgets.
If you know that you make money by spending up to 100 kroner on a single sale, you can buy as many sales for 100 kroner with a flexible budget at any time, as possible.
ROAS, the return on ad-pend, says something about how many dollars you get in income for each of the ad crowns you use. This may be a fine goal if you place budgets for a online store with different products in different price classes.
If you have a goal of earning six cents for each crown you use for advertising, you are flexible to adjust the budget based on the profit of the various products. If a product costs $60, you can spend $10 on landing a sale. Furthermore, you are also free to use $1000 to sell a product that costs $6,000.
Market bid based on the customer's lifetime value
If you have insight into the life-time value of a customer for your business, you will further increase the degree of flexibility in your budget. When you know what you will earn from the customer over time, you will be able to adjust your ROAS or CPA target more easily then. If you know that a customer is trading on average for 1000 kroner the first time they trade, but that the total life value of this customer is 10 000 kroner – you are likely willing to pay a higher price for the first purchase. You may even be willing to: lose first conversion.
Think in a straight line
A tip to get the most out of your marketing is to see the big picture and think in detail. A sale is rarely a result of a channel or a point of contact alone. It's rather a result of several meetings with ads across different channels. Be careful not only do you view the high ROAS from your Google text ads as an isolated case and compare these to those channels that at first sight seem less profitable.
If you dive deeper into your data and see the whole of your activities across channels, you will probably get a better picture of how the different channels play each one's important role in the customer journey and affect each other. It's the whole thing that counts!
Conclusion
Businesses should track the market activities they carry out, set clear targets for the results they want to achieve and control the value of a client. These three points are important prerequisites for the best market budget for an enterprise.
Do you need help in finding out which channels will be the most profitable for your company? Contact for an unauthorized conversation!