How to decide the size of your marketing budget? or Viewing marketing as an investment instead of cost let you make a better decision

I, and I suppose most of us, have often heard people asking questions along the line of “What is a reasonable marketing cost as a percentage of revenue?”, which is an interesting angle to determining marketing spending. I would argue that if marketing only represents a cost for you then you might as well cut it out. The purpose of marketing, as I am sure most people would agree, is to make more money. Thus, marketing should be viewed as an investment. Marketing as an investment is difficult to understand, partly because the long term effects are hard to measure.

I would pose that if you knew exactly how much you would have to spend in marketing to get one extra sale then you would be able to determine your marketing budget quite easily and logically. This however, to the dismay of many marketers, is a difficult and often impossible task. But if we stick to the economic assumption that the first marketing activity you buy is the one that gets you the highest yield/cost ratio, and when that resource is exhausted you move to the next best, then the marginal returns of marketing does decline. In this case the marginal ROI (the derivative of ROI)  will eventually reach a point in which adding extra money to marketing, is equal to adding that extra money to the second best investment (let’s say new production facilities, or a better webpage or whatever). Identifying this point is of course impossible for most businesses.

One way to approach logical thinking is to ask, if I add x money to the budget, how many more customers will that buy me? And if so, what happens if I add 2x, and so forth. Correspondingly, you should ask, if I don’t add x, what else could I use that money on, and how would that effect the value of my business? What if I remove x? The problem with this approach is that it may to some extent be based on a gut feeling rather than on actual performance metrics, in a scientific sense, but still this may be a better way to think about marketing. I would also like to note that the practice of assigning a given percentage of revenue, or budget or whatever to marketing is one that is widely criticized, because it does not look at what your business actually needs. The main lesson here is to think “what does that next dollar buy me?” and “what else could I have bought for that dollar?”.

Fu the FAQ - or do it right!

If you own a website, my challenge to you is that if you ever create an faq, don’t guess what people would ask. That’s just stupid. Wait until you actually get questions! I’m so incredibly tired of clicking the faq link and getting to a site where the first 50 questions was probably never asked. Your faq is a place to go to get answers, not another advertising channel. If your most frequently asked question is “Why is *** better then everyone else?”, then something is wrong, ok! No one has ever clicked a faq link to get that answer. You see Microsoft does this right. On the IE8 faq the most asked question is “How do I uninstall IE8?” isn’t that just honest?

Change happens when change is due

In April 3, 1984 the Norwegian police raid a man’s home in Gjøvik, near Oslo. The reason is that the man has admitted openly to watching foreign television channels through his satellite dish. In the years that followed a number of laws were lifted due to the realization that it was impossible to isolate Norway from the rest of the world.

In 2001 a program called Napster changed the way we consume music, In a major lawsuit effort, the record companies was able to take down Napster, but the damage had already been done. Hundreds of sharing applications was introduced, technologies that was supposed to make it difficult to track and get the file sharers. In our time the main target of the copyright industry has been the thepiratebay.org, and maybe they have succeeded, but it seems each time they cut of the head of this “monster” that is copyright infringement, two new grow out.

The Napster incident was nevertheless not the first move from the copyright industry to take down technology. In 1976, following Sony’s invention of the Betamax (later overtaken by VCR), there was an upheaval in Disney and Universal Studios that led to a lawsuit to shut down the technology. The argument was that this new technology could be used to copy movies and store them for later use, and this would surely be the end of the movie industry. Bear in mind that back then the major income sources of these companies was from theatres and from television, you couldn’t simply buy the movies. The US Supreme Court found that the technology could not be banned, because it could also have legal uses, and that copying a film to watch it later was “fair use”. Today this seems obvious, but the Supreme Court judges disagreed on the matter, and it was only by one vote that the lawsuit was rejected (the majority changed from 6-3 for the act to 5-4 against in the last minute). Today the largest single source of income from the movie industry is sales of video for home use (through DVD/Blue-ray), something that the movie industry couldn’t possibly have predicted.

In the cases listed above, new technology is viewed by the existing power structure as a source of social change, something that can make the old actors irrelevant. In all of the cases progress occurs without the support of those in power, but by the power of the people. Technological change is a wave moving across society, it has force, and powerful change cannot be stopped. Technological change will happen when the time is right. Instead of fighting change, business should embrace it, and try to think how they can be their best in the new environment. How do change in technology, in society, in consumers represent opportunities for your company?

Storytelling continued

Carmen Agra Deedy is a brilliant storyteller and a children’s books author. Originally from Cuba, she moved to the United States when she was a child. Recently I came across a video of her telling a story at TED, and because my last post was long and tenuous, without any video it seems fitting to add another post with this incredible storyteller. Watch the video, and think about what tools she uses to get you excited about the next part. Where do you get physical reactions? What emotions flutter through you? Do you like her as a person? Why / why not? These are the answers that any good storytellers need to understand.


Talk by: Carmen Agra Deedy tells a story. Settle in and enjoy the ride -- Mama's driving!