"MARKETING: Investment or expense?"
Updated: Aug 3, 2021
Most business owners struggle with making the decision to invest in marketing. There are many unanswered questions; “What do I do? Where do I do it? How do I do it?” and so many opinions about how to answer them. Before focusing on those questions, it’s important to understand the answer to a more important question – Is marketing an INVESTMENT or an EXPENSE?
First, let’s look at the 3 key terms involved in answering that question.
Expense: When you marketing investment is more than the profit made out of your sales.
Investment: When you marketing investment is less than the profit made out of your sales.
Breakpoint: Point where marketing investment and profit made out of sales is $ 0.00.
Many small business owners will categorize marketing as an “expense”, because there is fear in investing money in something that might not be tangible – like marketing. A small business owner might tell themselves:
I don’t think marketing will help grow more sales.
My budget is tight so I can’t invest in marketing.
I simply don’t know what to do.
While these thoughts are fair, they are also the thoughts that result in deciding marketing is an expense. To transitioning into thinking of marketing as an investment, we must acknowledge that there is a gap where invested money is not speeding up sales. This does not mean that you have to stop, this means you have to make a clear plan to invest the right amount of money that your business needs. This is when a chart like the one you see here comes in handy. As you see, sales DO NOT move proportionally to the amount of money invested. Sales start slow until they hit the breaking point, once you are over the breaking point the investment in marketing not only is more effective but also you get more and more sales by every dollar invested. If you refer to the graphic you can see how at the initial Investment for $ 800 dollars 20 sales are generated, then for the next 20 only $400 were needed and so on.
When you’re ready to start planning your investment in marketing, make a study plan of your company numbers, lay them out and come up with a monthly investment # that will be profitable for the company and do not stay in the scary state of mind or red zone (refer to the graphic); hire and expert who can asses you into having a great marketing plan. Find the perfect mix between media and creative, target correctly and understand your product so you can generate more sales.
Jonas E. Urdaneta H
The U Agency Founder