Spring 2011: by Brent Banda, MBA

Where Do I Spend My Marketing Budget?

As business owners, we often have too many great ideas on ways to grow revenues. Should we invest our time and money this year in sales force training, a new product brochure, or radio ads? Marketing, after all, is more than just advertising and there are multiple demands on limited resources.

Investing time and money in tightening up your sales process will have more impact on your bottom line than getting more people into a loose system where potential customers slip through the cracks.

Rather than trying to decide between two diverse options such as a billboard campaign or a new website, take a different perspective. Start by focusing on customers that have an existing relationship with your company and determine what is required to encourage them to purchase. The first step is to categorize potential customers into four groups.

Current Customers
An old salesforce truism is to spend most of your time on people that are ready to buy. It is often valuable to invest your time and money with current customers, because your effort is more likely to have an immediate impact on sales.

Your marketing effort with current customers can have multiple goals, including to lower the risk of a customer leaving, increase the number of transactions per customer, or increase the profitability of that account.

You usually don't have to spend a lot of money on current customers, but you do need to put careful thought into how best to impact the relationship.

For example, imagine a small engine repair business that services lawn mowers each spring. The issue facing this business may be to retain customers. The solution may be simply to mail these current customers a letter encouraging them to book early in the season to avoid delays. You don't even have to offer a price discount.

The definition of a current customer will be different for each company. Current customers for a retail furniture store could be interpreted as people currently in your showroom. Marketing resources should be focused on areas such as the showroom experience (merchandising, ensuring adequate inventory is displayed) or the sales process (salesperson training, brochures and other sales support tools).

Current customers for a manufacturing company may refer to people who make regular monthly purchases. Here, your budget should be focused on managing the ongoing working relationship. Take them out for lunch and ask them how you can improve how you do business. If a customer uses multiple vendors, your budget may be well suited to pursue a greater portion of their business.

Former Customers
As with current customers, marketing to former customers can have a high return on investment. These people are often easier to engage in the sales process than others who do not yet know your company.

Many businesses ignore former customers. As business owners we tend to believe former customers know everything we can provide and are fiercely loyal to our company. Clearly, these assumptions can be wrong. There can be many reasons why they no longer buy from us. In some cases, the customer may not have required any additional products after our most recent sale. But with time, a new need may have emerged. Have we stayed in contact with that customer? Customer appreciation events are often a fantastic way to rebuild past relationships. In other cases, the customer may have already begun to do business with our competitors. It may be valuable to focus time and budget on rebuilding those relationships.

The marketing approach you take to pursue former customers will depend on your own situation. These strategies and tactics will be influenced by your industry, your competitive situation, and your own company strengths.

The key is to determine whether or not it is important to change how you manage relationships with former customers. You may be leaving money on the table.

Potential Customers We Know
Most business owners are pretty good at realizing the importance of qualified leads. Improvements can often be made in how these leads are handled. The most dramatic impact on profitability can come with simply being organized. A surprisingly large number of owner-managed businesses rely on sticky notes to track sales leads. A Customer Relationship Management system (CRM) is a software application that tracks the progress made toward closing a sale. For most businesses, the annual cost of this software can be less than $1,000 per salesperson. The investment often pays for itself quickly, simply because potential customers no longer fall through the cracks. There are several CRM software applications available.

There are many ways we can influence potential customers we know. For companies that are attempting to inspire a first purchase with the intent to secure a longer term customer, a special promotion that offers unique product or special pricing may be appropriate.

Industrial and commercial companies often find success in altering the sales approach, such as incorporating team selling or approaching the customer with an entirely new potential working relationship such as an inventory management program rather than transactional sales.

Potential Customers We Don't Yet Know
This category has the lowest return on investment, because these customers do not have a relationship with your business and they might not be in a buying situation. However, this is where most business owners spend their time and money. Two reasons are common. First, most business owners fool themselves into believing they just need more leads in the pipeline. The opposite is true. Investing time and money in tightening up your sales process will have more impact on your bottom line than getting more people into a loose system where potential customers slip through the cracks. The second reason is that it is easy to advertise on radio, billboards and in trade magazines.

Too many people make mass advertising decisions simply because it is convenient.

Investing in this category is valuable in situations where revenue cannot be sustained by current customers or contacts, such as during a product launch or in an industry where purchases are extremely infrequent. It is often possible to integrate several options for the greatest impact. For example, if your customers require a great deal of background information during their purchase process you may be able to steer people to resources on your website through radio advertisements. The key is to realize what motivates your customers and the process they follow when making purchase decisions.

Conclusion
There are always difficult questions to answer when choosing where to spend a marketing budget. Should we focus on long term awareness or short term sales? What will happen if we never pursue potential customers that we have not yet met? Ideally you would effectively market to all four customer categories in the next year. But with limited resources, it is often valuable to prioritize based on the greatest expected impact on revenues and profitability.

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