The Shift: Marketing is Not an Expense; It's an Investment
Photo by LinkedIn Sales Solutions on Unsplash
If you're asking to see a return on your spend, then it's an investment. R.O.I.
No investment is a sure thing, and marketing is no different. Today, more than ever, marketers are testing...testing new technologies, new channels, and new messages. Markets and consumers are changing rapidly, so it's nearly impossible to identify one single proven strategy that will work for many businesses for a long period of time. When planning and budgeting for marketing, we always wish that our marketing teams had the time and resources to test and experiment. Unfortunately, that’s not always reality. We need sales today. We have to hit numbers by quarter-end. We have to do something that gives us an immediate return, otherwise it’s not helpful.
That’s what we hear from our leaders, from business owners, from the C-Suite. And they’re not wrong. Making an impact on the present is critical to most businesses. But let’s talk about how we can shift our thinking about how the budget is allocated to allow our marketing teams to expand their impact into the long-term, without giving up short-term goals.
Marketing as an Investment
Consider comparing marketing to an investment portfolio. If you’re familiar with the Time Value of Money, success in investing requires patience; the longer you let it grow, the more it's worth. The same concept applies to marketing—especially today. This article shares a little more about the Time Value of Marketing and why it matters. I love the comparison.
But like investing, you shouldn’t put all of your eggs in one basket. Same goes for marketing.
When we look at budgets, we look at it from the customer journey standpoint. We segment our customers and set goals and budgets according to their segments. Why? This helps us do a few things:
Understand where our dollars are going in relation to the customer
Get a realistic picture of expected return and timelines for return on spend
Think creatively about how we generate revenue from new and existing customers
Identify gaps or overspending in certain areas
Find opportunities to try new ideas
The customer journey budgeting process is fantastic for diversifying your marketing budget and putting those eggs into many baskets. This last point is especially important and something that isn’t talked about enough. What if you identified a modest budget every year to trying something new? Maybe you dedicate 10% of your spend every year and invest it in a new program, or a new piece of content. You know it’s going to take a while to produce results; you know you can’t stop doing a lot of other things you do for short-term results, but you believe that this is worth the investment.
Marketing Investment Metrics
Can you, as a marketer, provide these numbers for the CFO? Let's talk about two metrics that can help us think more clearly about marketing as an investment, and let's start paying more attention to them:
Return on total marketing investment (including advertising, technology, and analytics costs): Find this number by starting with all of the dollars spent on marketing initiatives, campaigns, reporting, and assets. Subtract that number from your Gross Revenue (some people choose to filter out ‘organic’ sales growth, but I would argue that still could be attributed to branding efforts, online presence, or sales enablement tools.). Then divide that by your marketing cost.
Return on total customer investment (including the costs cited above and all other customer spend): Find this number by taking all of the dollars spent on the customer (you can get this from your customer journey budgeting exercise), subtract it from your total revenue, and then divide by the total cost. In a nutshell, of all of the marketing you’re doing—all the dollars spent on new and existing customer growth/retention—you’ve seen a return of x%.
While these metrics are, no doubt, riddled with controversy, attribution error, and a lot of variables within each company, perfection is not what we’re after. Trends are what we’re looking for. It’s not a perfect science. Find a calculation that works for you and your CFO/CEO and stick with it over time. Use your common sense so that it helps you make better business decisions.
Understanding the Value of an Audience
Trying new things is sometimes where we need to go in order to grow our business. Today, when consumers have more control than ever over the buying process, when digital channels are absorbing more and more of their attention, we need to consider how we change and adapt to meet them as they change. And that means that what we did in the past might not work anymore. It might mean that we need to consider a different way to market. That also means the metrics might change, the resources needed might be unexpected. But we still must try, no matter how small the initial investment.
Marketing today is becoming more about ‘audience’ than it is about ‘customer,’ as audience considers experiences beyond the product or service, and encompasses customers and non-customers. That audience has value beyond immediate sales. That audience is permission, first-party data, and the ability to speak to a group who is already listening and ready, rather than interrupting a group who has ad blockers in your way. That audience has real business value and it’s worth building in most cases. Here’s a great example:
When The Morning Brew was sold for $75 million dollars, was it because they had buildings or equipment? Nope. Their LIST was one of their most valuable assets, I’d argue....the permission and trust built to reach out to a particular audience was definitely figured into the valuation of the business.
So, how long did it take Morning Brew to build this audience? The two founders started their email newsletter in 2015, so just under 5 years. Here are a few other numbers for you:
3 million subscribers
$20 million in revenue
$6 million in profit
Majority of revenue driven by flat-fee sponsorship packages
If any of you recall a few years ago when I said we need to become the media? It wasn’t my idea, but THIS is what I was talking about. This model could realistically be part of your company’s marketing strategy, and there are so many benefits:
It generates its own revenue.
It adds value to the business.
The audience trusts you (because you’re not constantly selling) and will buy from you (because they believe what you believe).
You’re using first-party data, so data privacy issues are reduced.
You have permission to reach out to them, so no need to pay for it, like advertising.
Morning Brew is a series of highly targeted email newsletters (who says email is dead?!) that has been monetized to generate revenue from multiple sources. Insider, Inc., who also wants to reach a similar audience, bought the email newsletter company and immediately gained access to over 2.5 million subscribers. Now, this is a media company buying another media company, but product companies are doing this too. In terms of marketing strategy, this is a buy—not build—content marketing strategy. And it’s happening a LOT.
Thinking Your Marketing Needs to Shift?
It’s not going to happen overnight, and it will take planning and buy-in across the organization. The Peas will be talking about this topic a lot in the coming months, sharing resources, and learning in our community about how we can implement these types of strategies even within our small or mid-sized businesses. Stay informed by Joining the Pod, or come to our next Pod Chat meetup.