Is marketing a cost or an investment?

August 6, 2012

The marketing budget in a business is a real tricky one! 

When a business comes to preparing the annual budget, marketing will be one of the expenses on the profit and loss account.  It will usually be given a round number that will be the budget for the year.

Here’s a few problems with this approach:

1. Unless you test and measure your marketing, how do you know how much to budget for?

If you are doing marketing that you are not tracking the results on, then you have to stop spending money on it!  All marketing should be tested and measured.  Some forms of marketing are harder to test and measure than others (e.g. an advertisement is easier than networking) but you have to do it nonetheless.

2. Marketing isn’t an expense, its an investment

Marketing should only be spent on if it gives you a return i.e. it results in sales increases.  You should regularly test a number of marketing ideas and methods to see which becomes the best one.  Any marketing that doesn’t result in sales though, isn’t worth doing.  You are not coca-cola, there is no brand-building!  It is direct sales or nothing!

3. If you test and measure your marketing and you know what works, why would you limit your spending?

If I know that by spending £100 on a advertisement, it is going to consistently result in £1,000 of revenue, why would I have an advertisement budget.  Why not £1,000 and have £10,000 of revenue.  There’s two real reasons, firstly, it may tail off (although find out when) and secondly, it may result in sales but it is cash going out of the business so there could be a cash gap that causes trouble.

Putting this aside though, the fact remains, if your marketing works i.e. it brings in direct sales, then keep spending on this marketing until it stops working.

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