Working with a variety of businesses provides me with a unique insight into each business model. It isn’t just about the sector the business trades in, it is about the financial model, and this is highly relevant to how you market your business. Marketing planning should always start with the figures and the scalability of your business.
If you look at every business they have incremental versions of the following financial models.
- RESIDUAL MODEL – Some businesses have strong residual income that could be guaranteed or relevant because they have an ongoing service their customers require. Typically, insurance with annual renewals, IT with monthly support contracts and of course website/software subscription based businesses who rely on the multiples.
- REMARKETING MODEL – In retail businesses rely on brand loyalty of customers to create repeat purchasing and will remarket continually to existing and new customers to create new sales. The more individual purchases made by a single customer can have a significant impact on turnover.
- ONE-OFF MODEL – Other businesses purely sell one-off services or products, looking for a continuous flow of customers as they cannot guarantee or difficult to predict any repeat business. House builders and Estate Agents could be deemed typical of the one-off purchase model, but they too will be holding data to market to the two-bed previous house buyer to encourage a 3 or 4 bedroom upgrade.
In truth every business as a little of all three but ultimately their success is geared around how well they introduce a marketing and sales process that recognises the opportunity to maximise the replication of the business model for financial gain.
Why focus on a business model first?
Marketing investment needs to be a tangible process of evaluation against the true worth of an individual client or customer acquisition. For example; if you are in insurance and you sell a policy once a year your true valuation of that individual customer you have acquired is relevant to your year-on-year retention value. Specialist insurance companies will normally have a very high retention value, so that £100 policy in year one with a 90% retention value is actually worth £651 over ten years. If it costs the business £50 to acquire that new policy through marketing and administrative costs, the return is £600 based on your business model. If your marketing and improved customer service can increase your retention rate to 95% and new customer acquisition of 20% the very same business will grow by 15% per annum. The retention value increases by £61 per policy over ten years. If you have a thousand policies, that is approximately £6000 net on your bottom line each year, normally with very little effort required.
Understanding the model dictates the marketing spend, and further correlates with the return on investment. Something typically outlined with our own Linkedin Lead Nurturing service. With the right business model, one newly acquired client and the gross profit earned from that client can cover an entire year of marketing expenditure for that medium.
Equating the tangibles
The famous saying in marketing is ‘half of my advertising is working, but I cannot work out which half it is’.
The reality is of course you can measure much more accurately than this age-old statement nowadays but we all need to accept that despite the promises of many in marketing, not everything is an exact science. Yes, you can code your offering to track individual mediums, and you can study analytics, or indeed ask the question how did you find us. To rely on the latter is full of intangible consequences. “I found your website”. How? Through a social link or was it a click on a directory listing? Your true evaluation is based on market research and gaining a true understanding of where your prospective clients reside, what your value proposition is, and how you need to market to them consistently to influence a buying decision. In a B2B business model especially, your marketing activity needs to be seamlessly integrated with your sales activity.
‘The perfect B2B marketing direction relies on aggressive sales follow up and gathering marketing/sales intelligence.’
Processing the tangibles
One of my key objectives when evaluating a marketing spend for a client is to have an open ended process of looking at all possible marketing direction, and then re-evaluating the potential against affordable budgets. It may be that you can honestly justify a tangible well thought out spend which is greater than you can actually afford. I would say this is common in most businesses, but the reality is to look at affordability in conjunction with growth. Where are the important places I should focus on now, and what can I introduce later as the business grows to further my marketing opportunity? Every planning process needs to cover all of the possibilities, choose the initial choice of marketing expenditure that is affordable and expect with growth to expand that marketing activity. One caveat is the size of the initial budget. A tiny budget will only give you tiny returns. Your budget has to be affordable but also realistic but don’t forget your existing customers who probably want to buy more from you.
Choosing your marketing budget
The DMA (Direct Marketing Association) make numerous recommendations on what a marketing spend should be as a percentage of turnover. I personally tend to look at this as a percentage of Gross Profit. If your business model is box shifting in large quantities (a business model demonstrating low margins), a 5% marketing budget based on turnover could be a substantial chunk of your gross profit, or as many will know in the manufacturing sector… all of your gross profit.
The planning process starts with the figures, and I have developed a process of evaluation that uses unique financial tools based on past performance to establish the opportunities for a business. The next stage is to test measure and perfect the marketing model.