3 Tips to Follow Before Spending Personal Funds on Marketing
We strongly adhere to the point of view that marketing is an investment, and like any other investment, it must provide a return that exceeds the cost. In theory, you should continue to spend additional money on marketing as long as the incremental expenditure yields an acceptable rate of return. To illustrate: When marketing professionals trying to garner our business ask us, “What is your marketing budget?” we explain that we don’t have a budget.
But if they can show us how spending a dollar will bring in a buck-fifty, we will have all the money they need.
Of course, in practice, our process is a bit more complicated than that, but the point is that marketing spend is not an objective in and of itself. It is a means to an end, and the end is revenue generation. So, if your own marketing isn’t generating enough revenue to make what you spend a good investment, you should reconsider your choices.
The primary question to consider here is whether your business should take money from your personal savings to invest in marketing. To be sure, over time, the answer to this question is an unequivocal “no.” Eventually, revenue must exceed all of your costs (including marketing expenses and your own compensation). Otherwise, you don’t have a sustainable business. And, yes, in the long run allocating a percentage of your revenue to marketing expense makes complete sense.
Notwithstanding that: In the short term, you may need to prime the pump. When you are starting out, you'll find that your expenses (including your marketing expense) may exceed revenue for a short time. And the deficit has to be covered from somewhere. Savings will most often pay for the short fall. You make an investment in the short term that you expect to deliver a sizable return on in the long run.
In building our own business, we took money out of savings for months before revenue rose to the point that we could not only pay ourselves but also put money back into savings. Our business is consulting and angel investing, but the principles are generally the same. Sometimes, to get things moving, you have to take a calculated risk.
Once you have decided to invest your savings in your own business, the question becomes, how can you mitigate the risk as much as possible and maximize your probability of success? We suggest following these tips.
1. Answer the three questions every business must ask.
Why should a prospective client buy your product or service rather than a competitor's? Know what makes you different. Perhaps you are easy to work with. Maybe you're offering a great location or unique skill set. Perhaps you have a product service package different from your competitor's. You must be able to answer this question clearly and concisely. If you can't, prospective clients won’t be able to answer it either, and they won’t buy from you.
Is there a segment of the market that values the thing that makes you different, and is that segment large enough to support your business? Being different isn’t enough. You may have created a skunk-flavored coffee drink. And that would make you different. You might well be the only provider of skunk-flavored coffee drinks in town. Unfortunately, it isn’t clear that there is a large enough segment of the market that would be attracted to skunk-flavored coffee drinks to allow your business to succeed.
How will you reach the segment you have targeted with your marketing message? In other words, what channel will work best for you?
2. Do enough marketing to reach a critical mass.
Research shows that for many products and services, you have to touch a prospective client an average of seven times with outbound marketing to elicit a response. It is unlikely that a single add will accomplish this. Doing too little marketing can be a complete waste of your money.
3. Do things that have worked for others.
Blazing new trails may allow you to hit a home run. Unfortunately, it also significantly increases the probability of striking out. There may well be a good reason others haven’t used that path. Pursue quick wins using proven techniques. Stick with the tried and true until you achieve some success. Then, use a portion of your marketing spend to swing for the fences if you would like.
Starting most businesses will require you to take calculated risks in the area of marketing. Following the tips above will help you mitigate the risk and increase the probability of success.