Marketing budgets only make sense for a business that treats marketing as an expense!
Marketing budgets are a legacy, a leftover from the days of Don Draper and 1950’s Madison Avenue. They come from a time when marketing meant branding. Which meant putting your name in front of as many people as possible for as long as possible.
Print, Radio and TV are the bedrock of branding and can be easily categorized as one-way media. As an advertiser, you push your message (normally interrupting) to as many people as possible in the hope that in the future your target audience recalls that message at a time of purchase.
The one-way nature of these campaigns makes it impossible to accurately track results. Marketing was relegated to guesswork and feelings. As results couldn’t be reliably measured, accountants were forced to use rudimentary controls over costs. Which led to “marketing budgets”. Normally calculated as a percentage of revenue the business could “afford” to spend on getting new customers.
Clearly not knowing which ads work and which don’t, means the vast majority of marketing budgets are wasted. Over decades this has given marketing and marketers a bad reputation.
Direct Response Marketing
In contrast to, “legacy” marketing, Direct Response Marketing (DRM) drives an instant measurable result.
In a digital world, a direct response campaign normally focuses on generating website visitors, subscribers, referrals or sales. It achieves these goals via two primary marketing channels:
Email Marketing & PPC (pay per click)
When you can accurately measure the return on your advertising spend (ROAS), you can stop treating it as an expense and view it as an investment!
If every time you paid Google $1 for a website visitor you made $10 in sales, would you cap your marketing budget? Of course not!!
Once you upgrade to direct response marketing, you quickly discover that budgets are very outdated. E.g An annual marketing budget isn’t much help in deciding how much to bid for each click to your website (PPC ads operate on an auction basis)
This is where Customer Acquisition Costs (CAC) or more specifically, target customer acquisition costs come into play.
Rather than treating marketing as an expense, you instead calculate a target cost or price you are able to pay to acquire a customer profitably. Ideally, the TCAC is provided to the direct response team and they, in turn, are able to use that information as the foundation of their marketing strategy.
This approach is superior to annual budgets in so many ways:
- Marketing agencies or teams stop spending in line with their budget allocation, irrespective of results.
- Profitable campaigns can be pushed higher than the annual budget would have allowed.
- Teams have increased creative freedom as a result of knowing what’s working and what isn’t.
Direct Response = Investment
Branding = Expense
Direct Response Marketing Benefits
If the ability to throw away your marketing budget wasn’t enough, Direct Response Marketing has another 6 key advantages over its branding counterpart.
- Speed – unlike branding campaigns, DRM campaigns offer instant results. This enables a business to immediately increase marketing activity that’s working, or cut campaigns that have poor results. Given the importance of cash flow management in a smaller business, this benefit alone makes DRM the right choice for most businesses.
- Trackable – All direct response marketing is trackable. Clicks, calls, purchases can all be linked directly to the advertising that generated that response. A word of warning though. Because something can be tracked, it doesn’t mean it is being. All too often we see campaigns with poor or none existent tracking. Without tracking you are making DRM about as effective as branding!
- Measurable – Tracking enables you to associate cost with actions and measure the outcomes. Not only does this enable you to calculate the return on each campaign (known as ROAS (return on ad spend) ) it crucially allows you to compare multiple campaigns at once to find what’s working best. Knowing what a good return looks like is a critical aspect of successful online marketing.
- Control – Unlike brand marketing, direct response campaigns can be turned on and off and budgets increased or decreased instantly. This is only possible thanks to clear tracking and measurement.
- Data-driven – Direct Response Marketing campaigns generate data which marketing teams use to continually improve results over time. Thanks to clear metrics the DRM team can see exactly what works and why. Over time this data becomes an increasingly high barrier to entry to competitors.
- Targeted – Thanks to the data it’s possible to target ads more effectively leading to much higher conversion rates. You know which ads work best, where they should be shown, who they should be shown to, and even when they should be seen to get the best results. Your data enables you to run incrementally more profitable advertising over time.
There are two key takeaways from this post. Firstly, if you’re not already taking advantage of direct response marketing, you should be! Secondly, once you adopt a measurable approach to marketing you are able to drop budgets and move to Target Customer Acquisition Costs. These two things combined will remove your own self imposed marketing restrictions and take your online sales to that next level.