Small Business Department

How Would You Like an Unlimited Marketing Budget?

By Alan Sartain

In a separate article, I showed you the secret to a better business: The ability to break the business down into logical pieces that we can build upon. Virtually any business can be divided into five segments: Lead Generation, Lead Conversion, Number of Transactions, Average Dollar Sales and Profit Margin. By breaking each segment down and focusing your attention on each segment separately, the process is much more manageable.

By focusing on each of these segments individually, you will get a powerful return. With a concentrated effort, you could grow each of these segments by 10%. As you will note from the example, if increase each segment by 10% your business would grow by an amazing 43% in Revenue and 61% increase in profits. Over the upcoming months, I will focus on each of the individual segments to give you ideas that you can employ to grow your business by at least 10% in each and every segment. As we take this journey to amazing profitability, I will reacquaint you with Joe, from Joe’s Plumbing.  You may remember Joe from some of my other articles.  He is a fictitious business owner who will help illustrate the principles that you can employ to grow your own business.

  • Lead Generation

As Joe talked to me about his desire to increase the number of people contacting him about his plumbing service, I reminded him that lead generation and the conversion of those leads into customers is the lifeblood of any organization. Until the sale is made, you do not have a business.

Every business is unique so the way that different businesses attract customers will vary greatly depending on whether the business is business-to-consumer or business-to-business. In Joe’s case, his business is primarily business-to-consumer so mass advertising vehicles such as the Yellow Pages, newspaper advertising and direct mail coupon books make sense. In addition, consumer referral methods such as business cards, refrigerator magnets and pens containing his name and number make a lot of sense.  Finally, since Joe drives a panel van around town, it is an excellent billboard with thousands of impressions everyday. We quickly turned his van from transportation into high impact advertising. I reminded Joe that the key to being successful with advertising is to constantly test new approaches and measure the results.

Now it is time for Joe and you to learn the secret that will create an unlimited marketing budget: treat marketing as an investment, not an expense.  To do this, he must test and measure every ad by creating a unique offer for each different ad, as well as asking everyone who calls him exactly how they heard of Joe’s plumbing.  This will help Joe refine his message and offer. With this information, Joe can focus on the two key elements that will ensure an unlimited marketing budget: Acquisition Cost and Lifetime Value of his Customers.

  • Acquisition Cost

To illustrate the principle of acquisition cost, let’s assume that Joe ran an advertisement that cost $1,000.  From this ad, he attracted 25 new customers.  His acquisition cost was $40 per customer. If all Joe did was to chase market share with this ad, it could be quite expensive. Instead, he needs to chase Wallet Share.  In other words, once he has attracted the customer, what other products and services can he sell the customer? Since now they know and like Joe, they will be more inclined to buy from him again.

  • Lifetime Value

Joe began to realize just how important it was to understand the lifetime value of his customers. Once he understood this point, he went to work building and developing relationships with his customers to make sure that he kept them for as long as possible.

  • Unlimited Marketing Budget

By constantly testing and measuring his marketing, Joe was able to lower his acquisition costs by increasing the effectiveness of his marketing thereby delivering more customers for the same advertising dollar. He also increases the lifetime value of his customers by improving their experience and selling them more services.  The combination of these two strategies changed his marketing from an expense to an investment and gave him an unlimited marketing budget.