Many business owners mistakenly look at marketing as an expense – when in reality, it should be seen as an investment. When the going gets tough, it’s often the marketing budget that’s the first thing to get cut – just at the time when a business needs to be bringing in more customers.
In this post, we look at the mentality behind marketing, and how changing your thinking from seeing marketing as an expense, to seeing it as the process of buying customers will deliver real, measurable benefits.
The purpose of marketing
Before we start talking about the benefits – it’s vital that we understand the purpose of all our marketing efforts.
Whilst some marketing experts will tell you that it’s all about improving reputation and developing brand awareness, ‘engaging’ or even making more sales – this is the ‘how’ of marketing, and not the ‘why’.
The goal of all marketing is to buy customers for your business for less than they will generate for your business in terms of profit.
To put it another way, as long the money you are investing in marketing is generating more profit for your business than it is costing you, then your marketing is a good investment.
Understanding this concept is key to getting real value from all your marketing.
Acquisition cost vs Lifetime value
When we start to think about marketing as buying customers, it becomes clear that successful marketing boils down to a simple equation:
Acquisition cost < Lifetime value
In this way – as long as you spend less in buying a customer through sales or marketing than they will provide to the business in profit over their lifetime as a customer, then that marketing is a worthwhile investment.
The ultimate goal
Obviously, things aren’t quite this simple, when things like cash flow and your available capital are brought into the equation.
In reality, the best marketing is when you purchase a customer for less than the profit you make on the first sale – because if you do this, then your marketing budget becomes absolutely unlimited!
As an example:
If you know that every time you spend £1000 on an advert, you get 10 customers from that advert, then the cost of buying each customer is £100.
If you make over £100 in profit on an average first sale, then you can afford to keep investing in this kind of advertising at whatever level you want to, because it is a sustainable investment and not an expense.
In this way, you can buy as many as your business can handle, without having to worry about ever spending too much on your marketing!
However even if you don’t make over £100 each sale, or you only get 5 customers per advert, that £1000 advert could still be a great investment – as long as the lifetime value of that customer is over £100, and you’ve got enough working capital to wait until they reach the break-even point.
How Coach Pam can help
For further information on buying customers, marketing mentality or any aspect of running a successful business, get in touch with Coach Pam and book your free, no obligation coaching session today on 07540 888016.