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To Spend or Not to Spend

By: Bruce Hayne

Generating increased gross revenue and therefore more net profit is the purpose of any marketing strategy. Justifying the strategy and quantifying the results is another thing all together. The classic mistake many young companies make, and those mature companies struggling with decreasing profits, is to cut marketing budgets significantly or in some cases completely.

The thinking goes something like this: “I’ll rely on my sales force to generate leads and drive revenue growth, and the money I would put into marketing I can put into sales incentives and territory support.” We are all pretty familiar with the Return on Investment (ROI) formula: Net Profit divided by Capital Invested, but when calculating marketing ROI, (ROMI) the formula changes. Total Revenue divided by Marketing Budget while simplistic, doesn’t paint an accurate picture of the long-term success of a marketing strategy or even how one would quantify incremental marketing efforts. A longer-term equation looks at incremental marketing spending as compared to increased margins (reduced cost of sale).

Using the formula of Incremental Revenue divided by Cost of Marketing is an easy way to determine the effectiveness of any marketing and media strategy. Regardless of how you track the effectiveness of your marketing campaigns and strategies, there is little doubt that one must continue to market in order to survive. As Henry Ford famously said, “A man who stops advertising to save money is like a man who stops the clock to save time.”

So, now that you are convinced that you must market your organization and products, how do you balance between all of the available platforms and options? The answer lies in who you are targeting and what your strategy is trying to achieve. The formulas mentioned above will give you a comparable matrix across all of the available marketing channels. If you think it’s difficult to measure your effectiveness, especially online, you’re not alone. According to Social Media Examiner, 88% of marketers want to know how to better measure their ROI for Social Media and while 92% of marketers say Social is important to their business, only 42% say they are able to measure their activities. Platforms like Twitter (313 million monthly users) and Facebook (1.3 billion daily users) lead the social media landscape with 1/3 of the world using some form of social media platform according to eMarketer2016.

In B2B marketing over half of all ad budgets are spent on lead generation (BrightTALK2015). A full 65% of marketers say generating leads is their top priority, yet only 17% credit outbound activities with providing the highest quality of leads (HubSpot, 2016).

While some of these statistics may seem confusing, a mix of traditional and new media strategies will give you the best chance to reach and ultimately convert new prospects. Using the ROMI formula to determine the effectiveness of each strategy will help to guide your media spending as you refine your marketing strategies, but not spending on your marketing is simply not an option.