I talk to a lot of business owners and in-house marketers. A common trope I hear is that they’re testing different marketing things, but they’re not sure which ones work.
I have a theory that I’ve developed over time, as to why they’re not seeing more success.
My friend, Peep Laja from Wynter and CXL, recently said he’s asking potential heads of marketing what the three things they’d do to improve Wynter’s marketing results. This was my response:
My take is that most companies with a good offer succeed by not doing too many of the the wrong things, not enough of the right things, and too many things overall.
In short, as a quote from Bill Hewlett of Hewlett Packard that I heard via Dharmesh Shah from HubSpot, says:
More companies die from indigestion than starvation.
Bill Hewlett, via Dharmesh Shag
In marketing, those who are dying from starvation are possibly also suffering from marketing indigestion. They have no focus and aren’t avoiding the things that will give them heartburn.
Heartburn can mean a lot of things in business:
- costing you time,
- costing you small amounts of money time and time again and not learning anything,
- and more.
A Common Scenario in Startup Marketing
A company signs up to some coach or guru’s program. This person sees that the company isn’t doing any advertising, so the person tells the company to get started with “just $10 per day.”
This advice is given because the coach/guru (they’re different, by the way) knows that the bar to getting started is usually the hardest, so just getting the company to start is the biggest win.
Great, all good. These companies are probably pretty small and unsophisticated, but whatever. Getting started is necessary.
What happens next is where too many companies go awry. They never increase that budget!
They stay at $10 per day, which means that it will take them forever (many months) to see any return. And that’s if they give it that much time. What most companies do is say “Oh, this didn’t work” and cut the budget completely, but the reality is that they need to do the opposite.
They need to spend MORE.
Here’s an example for you.
Say you sell a $1,000 per month, or $12,000 per year, service. At a 50% gross profit margin, or $500/mo in profit, you can now make a call on how many months of future-looking profit you’re willing to spend to get a customer. Let’s say you decide on 3 months, so you’re targeting spending $1,500 to acquire a customer.
You also know that you close 1 in 5 qualified sales leads, or 20%. So you need 5 qualified leads, or qualified leads for $300 each, per month to add 1 new customer.
At $10 per day, you may get 1 qualified lead per month ($10×30=$300). If you’re lucky (or unlucky, depending on how it affects your future actions), you may close them into a new customer in the next month or so. Realistically though, it’ll take a few months to get a closed deal. By that point you’ll forget where it came from, not give the right channel the credit, and so on and so forth.
But what would happen if you budgeted properly and gave your campaigns $150 per day? That’s just $3,000-$4,500 per month, so not even crazy money, but it means you’d go from 1 lead per month (hopefully!) to a lead every 2 days. You’ll get ~15 leads per month, on average, which means 2-4 customers per month.
In this scenario, you’re spending $3,000 per month, let’s say, but you’re closing $2,000-$4,000 in the first month. You’ll make your money back in a month or so.
You’ve now spent $3k, made $3k in the first month (close to credit card funded advertising!) and $1.5k of that is profit. You’re spending $1,500 per customer, which is on par for what you want to spend (3mo profit), and you’ll make your investment back in 2 months, so the economics work. With a few more strings pulled, you could be close to profitable in month 1, and definitely month 2.
This line of thinking gets better with a higher ticket product and slightly worse (longer to get profitable) with a lower cost offer. But you see my point, I hope.
| Daily Budget | Lead Cost | Leads Per Month | Sales Per Month | Revenue Generated | Profit Generated | Months to Profit | |
| Scenario 1 | $10 | $300 | 1 | .2 | $0-$1,000 | $0-$500 | 6+ |
| Scenario 2 | $150 | $300 | 15 | 3 | $3,000+ | $1,500+ | ~2 |
Spending More Minimizes Risk
If you’re looking to minimize risk by spending less, you’re actually introducing more risk by taking longer to acquire customers and gain market share.
The less risky thing, which appears to be more risky at the start, is spending more sooner so you can learn faster. Then you can adjust faster while learning how to sell to these leads and improve your acquisition costs.
With either scenario above, either spending less or spending more, you probably won’t achieve the metrics outlined above from the start. If you do, by the way, then you need to throw as much budget as you can into that campaign.
For most, you’ll have some tweaking of messaging and creative and your landing page to achieve those numbers. So this is even more of a reason to spend more than a bare minimum to getting started, but also keeping in mind the balance of not spending TOO much.
This fear of spending too much to learn is the reason most never grow their spend at all.
The solution is pretty easy though.
Don’t spend more than you can afford.
That’s it.
Is Spending On Advertising Right For You?
If you can only afford $10 a day and you’re selling a $1k/mo offer, advertising might not be for you. Save that money and put more time into content marketing. You’ll save money and get results in about the same amount of time while also building traffic and a brand.
If you have decent revenue already, or finding, and can spend $3k/mo, then spend it. Don’t sandbag yourself with a bit of budget spread to a bunch of platforms waiting on magic to happen from one.
But if you can afford $3k but not $10k per month, then don’t spend $10k per month.
Spend $3k, and not more, until you’ve seen the results and can afford to scale.
Spend More!
To wrap this up, spending too little on a marketing campaign is a fairly sure death knell to that campaign’s success. If your marketing campaigns don’t work, your business may not work. Effective marketing can overcome many, but not all, business sins.
If your campaigns aren’t working, or are taking too long to give you enough results to know if they’ll work or not, then I recommend that you consider spending more on each campaign, and possibly choosing to pause some you haven’t been spending enough on so you can put more wood behind fewer arrows.
What do you think? Do you need to spend more on fewer things?
It’s worth considering.
