Should I invest in marketing?
How does any business owner decide how much money to invest in marketing? Should the marketing budget be based on a percentage of income? Or is it best to identify the projects for the year and the cost of each one to build up the overall budget? Our troubleshooter Jane Braithwaite gives her views.
If a business invests £1 in marketing and generates £5 of income there is an argument to spend as much as possible on marketing to generate the highest income. Most businesses need to be more mindful of cash flow and are not able to deliver exponential growth to justify that level of marketing spend.
When making any business decision it is wise to look at what other companies are doing to learn from their experience. The Gartner report titled ‘The state of the marketing budget 2021’ provides some insights into post-covid trends about marketing expenditure.
Gartner reports that marketing spending as a percentage of income is at the lowest point in history. In 2020, marketing spending as a percentage of income was reported to be an average of 11%. In 2021 this reduced drastically to 6.4%. Before 2020 the percentage had typically sat between 10% to 12%.
We can assume that in the coming years, as business confidence returns, we will see this percentage increase again to pre-covid levels.
Stunts creativity
In many small to medium businesses, decisions on marketing budgets are made on a project-by-project basis. This creates a short-term approach and stunts the creativity of the marketing manager or team.
I am totally against micromanagement, as I firmly believe individuals can contribute more when they are given responsibility and accountability and allocating the marketing budget in this way does not encourage either.
Setting a budget, ideally for the next 12-month period allows you to work with your marketing team to make sensible, long-term decisions.
If you are new to the concept of marketing your business, then setting a budget for the whole year may seem too large a step. In that case, start with a budget you feel comfortable with and invest wisely. Measure the success of your campaigns and invest more in those that are most successful.
Before allocating any of your budget, you must set out your objectives for your marketing activities. What do you want to achieve, when do you want to achieve it, and how will you measure success? Success can be so subjective in marketing, so it is critical in any plan to define your SMART objectives. So your business goals must be Specific, Measurable, Achievable, Relevant and Time-bound.
Work with your team
The subjective and individual nature of your objectives means that there is no boilerplate plan for marketing your business. This is why you must work with your team to set out how your marketing will help achieve your vision for the business.
Your marketing budget is not going to be infinite, so it must be carefully allocated to projects and campaigns that are likely to bring revenue to your business. There may be larger projects, for example, a new website or a large event, which will take up a large proportion of your overall budget.
Allocation of budget to these ‘big-ticket’ items needs to be done with care to avoid using all your resources up too early in your financial cycle.
One of the decisions you will need to make is how often to review your marketing results. The risk from checking too often is that you may feel the effects are taking too long.
Make adjustments
On the other hand, if you only look at the outcome of your efforts once a year, you will be unable to make adjustments to projects that are underperforming or to double down on your successes.
One possible approach is to sit down with your marketing team and have a full review of your activities and results every quarter. This way you can start to see which of your activities are having the right effect, and which are having no effect at all. This will allow you to make alterations to your approach if required, or to cut projects when needed.
The essence of good marketing is measuring the outcome of your campaigns so that you can calculate your return on investment; in essence, how much ‘bang for your buck’ you are getting.
Tied to this is the concept of ‘lifetime value’ (LTV), which is the average revenue you will earn from a patient throughout the entire time they are with your practice.
This figure will vary hugely between clinicians. Those that usually see a patient to treat a one-off problem will derive a very different lifetime value than those who treat patients with lifelong conditions.
Your marketing team will help you review the data for your practice to work out the average LTV for your patients. If the amount you spend to acquire a patient is less than the LTV that the patient will bring, then you can begin to generate a profit.
Return on investment
If you spend £100 on marketing to attract two new patients to your practice and the lifetime value of each patient to your practice is £1,000, then your return on investment is excellent.
There would be a strong argument that you should invest £1,000 in the same form of marketing and generate 20 new patients. You could invest more, of course, and soon the limiting factors will be your time and how many patients you can see each week.
Marketing has the power to bring greater success to your business if done properly. With the help of your marketing team, you should set a sensible budget with specific goals, and a reasonable time span to take effect. Your success, or otherwise, should be measured against specific targets.
Marketing is an investment in the future success of your business and should be viewed as a worthwhile expenditure to achieve your goals.
If you have any specific questions that you would like answered in upcoming editions, please do feel free to get in touch
Jane Braithwaite (right) is managing director of Designated Medical, which offers flexible, customised support for private practice needs including accountancy, marketing, medical PA, HR, and recruitment
