The Importance of Business-minded Marketing

Marketing success does not always equate to business success.?

Yes – having a fantastic, omnichannel marketing strategy will inevitably enhance the success of any business.

That should be obvious.

What I will attempt to explain in this newsletter, however, is that marketing success and business success do not necessarily go hand-in-hand.

There may well be a correlation between the two, but this relationship is certainly not a causal one.?

In other words, just because your ad campaign is performing well, it doesn’t mean your business is.

Marketing success should never be viewed in isolation.?

For this same reason, you cannot measure the success of your business using marketing metrics.

Take ACoS as an example – a rather trendy metric that marketers will often refer to when showing you “your company’s AMAZING returns this month”!

ACoS (Advertising Cost of Sale) is used to measure the performance of ad campaigns, calculated by dividing the total advertising cost by the total revenue generated from those ads.

ACoS is a key metric to help marketers understand the effectiveness of ad spend in driving sales, allowing them to ensure that they are bringing in more money than they are spending for the company.

The key thing to note is that bringing in significantly more than your spending in marketing terms (i.e having a “good” ACoS) does NOT guarantee that your business is doing well.??

Ad spend is only ONE cost that you must take into account against your total revenue when analysing the overall health of your business.

Imagine, for instance, you’re an e-commerce business that spends ￡100,000 a month on Google ads, mainly Shopping ads as they typically tend to have the best return on investment.?

You spend another ￡20,000 on Facebook and Instagram remarketing ads.

[NOTE: the following figures are simply a rough guide for the purpose of this newsletter]

Your revenue back in a flat month (with no sale period) through your website is ￡250,000.?

You and the marketing agency are ecstatic, and why not, ￡120,000 in and ￡250,000 out is a good return on investment right?

￡250,000 revenue minus ad spend (￡120,000) leaves you with ￡130,000.?

You then have to minus agency fees – so let’s say that’s 10% (￡12,000) – so that leaves you with ￡118,000.?

Still looks good, yeah??

Now it’s time to factor in all the running costs.

Your bill is ￡80,000 a month (e.g. staff, office space, stock, warehouses, distribution etc.)?

You’re now left with ￡38,000 monthly profit.

If you average that a year, then you will have ￡456,000 yearly profit.?

Again, not bad eh?!

Well, hold up. Let’s suppose you have investors and they want a shareholder payout. They own 50% of the company, so they take ￡228,000 and leave you with ￡228,000.

Minus corporation tax (25% in the UK from April 2023, for example) – this is what you take as your yearly profit:?

￡171,000

And, if you wanted to take that money out, you would have to pay tax AGAIN (over ￡50,000 worth of it in the UK)!?

This could very easily be the reality of an e-commerce company (hint: this example is inspired by real life).?

Whilst such a business is clearly sustainable for the time being, taking ￡3 million a year in revenue for a genuine profit of ￡171,000 does not necessarily leave much margin for error.?

More importantly, how can you grow your business? How can you invest in more staff, more wages, more advertising, and more products?

It’s no wonder there were 581,824 dissolutions in the UK from 2021-2022 !

Equally, in the Middle East …

• In the first year, 20% of businesses fail
• In the fifth year, 50% fail
• After ten years, a whopping 70% of them fail

But, back to the point...

The moral of the story?

Marketing success viewed in isolation is dangerous for your business.

Even if you’re running a great ad campaign, you may be incurring far too many costs.?

ACoS as a metric only factors in ONE cost (ad spend), making it redundant as a way to assess the overall profitability of your business.?

Such metrics CANNOT help you identify whether your business model is utterly unsustainable, as they do not help you diagnose whether there are too many running costs and/or overheads.?

The solution?

Business-minded marketing.

There must be a symbiotic relationship between your business strategy and your marketing strategy.?

Before any marketing efforts are undertaken, your business must identify what it needs to get from a marketing strategy in order to be sustainable and scalable.

Of course, it’s not a marketing agency’s responsibility to factor in (or even know about) operating costs and assess overall company performance. That responsibility falls upon the business itself.?

However, it will always help to have business-minded marketers on the case, especially in an in-house marketing team who are aware of the company’s books.?

Many people may find the core message of this newsletter rather simple.

Effectively, all I’m saying is “make sure your business is profitable and sustainable” – not exactly rocket science is it?

My reply would be:

It’s very easy to know something; it’s much harder to apply it.?

Are there any marketing myths that you want me to debunk? Please feel free to comment or message me about a problem you are facing/have faced as a business owner or a marketer, so I can tackle it in a future newsletter.