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Marketing Is Not A Cost – A CEO Who Doesn’t Understand Marketing Is

Written by: Michelangelo Celli

Article Overview: If you have not taken the time to measure what your customers are worth to you over their lifetime, you have no way to build a rationale for what you should be willing to spend to win more customers. Without an understanding of the true value of your customers, any decision you make about investing in marketing is a risk.

Marketing Is Not A Cost – A CEO Who Doesn’t Understand Marketing Is

If I had a nickel for every time I’ve heard a CEO say, “we want to get as much marketing as possible for the least amount of money,” I would be a rich man. Believe me. I have measured it. Why is it that so many CEOs and their management teams are still approaching marketing from the position that it is a cost? Because they have absolutely no metrics to justify how they are spending their marketing dollars.

Most CEOs of privately held Business-To-Business organizations have not taken the time to measure what their customers are worth to them over their lifetime, and so they have no way to build a rationale for what they are willing to spend to win more customers.

A TRUE STORY:

A CEO of a $10 Million professional consulting business wanted to see an increase of 20% in sales each year for the next three years. But the size of the approved marketing budget was just $150,000 per year. The company struggled – and ultimately failed – to reach its goals, and was constantly modifying its sales forecasts, and creating excuses about the inadequacy of the plan. This company was trying to get the most out of marketing for a minimal amount of investment.

A far better strategy was executed by the above company’s competitor, whose CEO decided to view marketing dollars as an investment. He analyzed his customer base and discovered that 80% of the company’s revenue for the last 3 years was coming from the same 10 accounts. Further, he realized that each of these accounts had, over their lifetime, generated a total of $2.4 Million in revenue at a 20% net margin.

The only relevant question for this CEO quickly became how much of his account profit he wanted to invest to win more key growth accounts. By investing all of his profit, the CEO grew the company at a rate of 100% per year for 18 months, and then at a rate of 40% after that… pretty impressive!

HOW TO INVEST IN MARKETING:

Think for a moment about what an investment advisor does. Let’s assume you and your spouse have $10,000 to invest in your retirement. You give the money to your advisor and he recommends a solid mutual fund that should earn between 7 -12% in the next 10 years. If you assume an average of 10% in earnings a year, then you will have more than doubled your investment in 7-10 years. Good job!

What did that investment advisor really help you to do? He worked with you to manage your money over time – and helped to deliver a measurable return.

THAT’S what your marketing team is supposed to be doing – taking your company’s money, directing that money into the market through programs and initiatives, and managing it over time to give you a measurable ROI.

LESSONS LEARNED:

Say you and your spouse told your investment advisor that you wanted to get as much money as possible out of your retirement investment, but that you only wanted to put a small amount of money in. Your advisor would explain that the dynamics of the marketplace make that an unwise investment… and would likely steer you in another direction.

It’s the same with marketing. As a CEO, it is your responsibility to improve your understanding of marketing so that you don’t set your team up for failure. You can’t get blood from a stone. You have to put money into the market in order to pull money out. Educate yourself on the marketing process, and how to activate it for your business. A great place to start is to build a model for what your customers are worth to you, then you can work backwards to a rationale for what you can spend per customer to win new ones.

Good luck!

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