Marketing and Advertising – An Expense or an Investment?

By Action Coach Dave Beam

Most of the business owners that I speak with tell me that the majority of advertising and marketing is largely a waste of money.  They advertise out of fear, feeling like they need to at least keep their name out there.  They usually have a sense that most of their new customers are coming in from word-of-mouth, and that the advertising that they buy is probably not effective.  As a result, most small businesses are reluctant to advertise and try to minimize their marketing expense.


I agree that, based on the way most small businesses do marketing, it does not make sense to increase the advertising budget.  However, a proper understanding marketing and advertising is the key to business growth and success. A proper understanding begins with shifting your mindset concerning marketing from EXPENSE to INVESTMENT.  You try to minimize expense, and maximize investment return.  If you will view your marketing and advertising as an investment, you will advertise and market strategically and measure the return for every campaign.  The key is “testing and measuring,” because marketing is all about numbers.

In basic terms, you really only need to know two numbers; The LIFETIME VALUE of a customer, and the ACQUISITION COST to gain that customer.  Knowing those two key numbers is your business success or failure.  If the acquisition cost is consistently less than the lifetime value, then you will realize a return on your investment, and you have created a profitable business that will succeed.

For example, let’s say I sell tires.  Let’s say my average customer buys two tires per year from me, and he stays with me an average of 25 years.  If the gross profit on my average tire is $50, then the base lifetime value of a customer is 25 x 2 x $50 = $2,500.  If that average customer also brings me 3 new customers in his lifetime, his lifetime value just increased to $7,500.

For acquisition cost, let’s say I have a direct mail campaign with an offer for a free alignment with the purchase of a set of tires.  I typically get a 0.3% response, and the mailers cost me about $2.00 per piece.  That means if I mail out 1000 pieces, my campaign cost is $2000, and I will gain 0.003 x 1000 = 3 customers.  The lifetime value of each customer (+3 referrals from each) is $7,500, so I have just invested $2000 (plus the cost for the free alignment) that yields a return of $22,500.

There obviously is more to the story, but you get the basic idea.  One reason that most small businesses fail is that they do not look at marketing as an investment that must be leveraged and maximized.  Instead they look at it as a necessary expense that should be minimized.   A great marketing strategy is all about getting customers IN and reducing acquisition costs, as well as continually increasing the lifetime value of customers that you have acquired.  It’s all about getting customers IN, (and keeping them IN) not necessarily getting your name OUT.

I would love to come and meet you and discuss your current marketing and advertising strategy.  Call us at 740-444-4164 and request a free initial consultation (valued at $395) as my Christmas gift to you!  Happy Holidays!