A Return on Marketing

Marketing: an expense or an investment? Many people (particularly accountants, bless them) would probably say it’s an expense. But isn’t it supposed to earn more than it costs?

If you spend £100 on an ad campaign [this is only an example] and make £120 extra profit in additional sales, ie, a return of 20%, is the £100 an expense?

Done properly, marketing communications should always earn considerably more than they cost. They produce a return, which makes them an investment in my book. The burning question is: how much should you spend – or should I say ‘invest’?

Naturally, there are no short answers, as businesses differ widely. But there are useful guidelines. For high margin businesses, 5-10% of turnover is a typical marketing spend. Anything under 3% will probably see your market share shrink.

Very high-margin businesses, such as Microsoft, will spend as much as 20% of revenue. Service businesses tend to spend relatively more than manufacturers or retailers, as do smaller businesses.

If you’re spending more than 3% of your turnover on marketing, and your business isn’t at least keeping pace with its competitors, you should probably look at how you’re spending it.

Are your marketing messages truly compelling? Are they reaching the right people?

I’ll try to address both those questions in future columns. If you can get the formula right, the returns can certainly be spectacular. When ad guru John Hegarty had the idea of getting Nick Kamen to strip down to his boxers in the laundrette to wash his Levis, sales of the jeans increased 800% within weeks.

The ad had to be taken off air so production could catch up. The campaign earned many times more than it cost. If only we could all be that good all the time!

Robin Petherbridge