You will learn
What is ROI (Return on Investment)?
Confused decisions lead to a loss of investment which causes a decrease in the ROI on marketing. Most of the time, people do not have clarity on what media they want to use in their marketing strategy.
What is ROMI (Return on Marketing Investment)?
Right Level of Marketing Investment
The right level of marketing investment could be defined by calculating marketing investment while also considering the marketing factors.
Factors affecting Marketing Investment
We have summarized some major factors that can help you decide the budget for Marketing Investment.
Different thought processes and methodologies are involved in targeting different types of audiences. Millennials are not into print media so it should not be used to target them. They are more into social media, so electronic media should be utilized instead.
The selection of the target audience depends on the type of business. As a real estate business owner, you know that older people or people above 40 years of age are mostly interested in this business. People of such age groups prefer reading newspaper classifieds or online portals. Therefore, you need to go that way.
Extent of the Target Audience
Clothing brands or footwear brands have young target audiences who spend most of their time on social media so you need to work on that media.
Both media have different cost management and your marketing budget can vary in both media.
The extent of the target audience refers to how vast your target audience is, whether it is local or international.
Local marketing requires less marketing budget than international marketing.
Advertising on international pages or platforms requires more budget. Thus, this factor can also affect your budget selection.
Nature of Business
A new business requires a lot of marketing investment as they are new to the market and no one knows about them. Therefore, they will have to market their brand and product in different phases and it may take a long time to achieve the ROMI, costing them a large amount.
Methods for calculating marketing investment
Now that you know what different factors you should consider before estimating a budget for marketing. We want you to understand the 4 methods that will give you a good helping hand to calculate the right level of marketing investment.
You can call these methods formulas, like in mathematics.
Every method has its advantages and disadvantages. For some businesses, a method is advantageous, but for others, it is not fruitful to use.
We will explain all of them and then let you decide which method is right for you in defining the right level of marketing investment.
1. Sales Method
Based on the previous year’s sales, a specific percentage is selected that is dedicated to the marketing budget.
For instance, if last year’s profit was 30 lacs and you think you need to do more marketing to increase sales and you want this profit to be increased by 0.5 times, you are ready to gain this 0.5 times profit as a ROMI (Return on Marketing Investment).
For this increase in sales, you have decided that you will use 4% or 5% of last year’s profit to increase revenue in next year’s sales. This is the simplest idea among all other methods but it can have the most adverse factors.
Every year the market revolutionizes, and the target audience’s tastes change. If you are still selling the same old products and marketing them in the same way, your marketing budget will not get you enough ROI and your investment would be in vain.
The previous year’s sales percentage will not give you an optimum figure to spend for the current year’s sales.
Advertising is not directly proportional to sales. Marketing is just used to give people a perception of the product and push them to think about the product to make an informed decision.
Hence, if people’s perception has changed this year, you cannot use previous years’ data to target this year’s audience with a new ideology.
2. Spend from the reserves
The company’s financial position determines the marketing budget. Before proceeding to any endpoint of this method, we want to clarify that this method does not apply to new or small businesses.
Only companies generating billions or millions of dollars of revenue every year can adopt this method because this method requires a huge investment with the potential for a huge ROI.
All the reserves are spent on marketing after paying all the salaries, resources, and every other bill. The leftover is entirely spent on marketing with the biggest marketing campaigns that surely generate a huge ROI.
The only condition to play this game is that you should have a huge amount to invest, perhaps 200 or 300 million dollars. The results are positive with this method.
However, most companies do not go for this method as this sounds insane as well! Well, those who have to do, do it anyway.
Let’s proceed to the next method.
3. Copy paste method
Look for your competitors & simply copy their marketing method, budget, and everything they are doing. It is not illegal, and no one can sue you for this.
People think that it is wrong and will give customers a wrong perception but it does not. People are only concerned with the services and quality no matter what your marketing tactic was or whether you copied someone or not.
In our opinion, this is the smartest move and will save you a lot of time.
Most businesses use methods to generate a rough response of how much their competitors are investing in marketing. So, they usually try to invest more than that and consider their competitor’s investment as a minimum set point.
3. Goal Achieving method
The previous methods involved some shortcuts or smart work but this method is total hard work and an actual motivational method where you cannot use any shortcut.
Calculated research is done after setting the ultimate goal of marketing and all parameters are briefly interpreted by the experts of the marketing team.
Then the budget is allocated for marketing and that budget is invested by the company no matter how big the amount that marketing experts have given.
Due to this factor, this method is only effective for the larger companies to adopt who can invest a huge amount without hesitation for the betterment of sales without bothering about the ROI.
Quick picks for Marketing Investment
Marketing investment is a crucial aspect of any business as it directly impacts the growth and success of the company.
However, determining the appropriate level of marketing investment can be a challenging task for many business owners and managers.
It is essential to strike a balance between allocating enough resources to marketing efforts to achieve business goals while not overspending and wasting resources.
To define the right level of marketing investment, businesses should begin by assessing their marketing objectives and goals.
Understanding the desired outcome of marketing efforts helps identify the appropriate level of investment needed.
This includes identifying target customers, analyzing market trends, and assessing competitors’ activities.
One common method of determining marketing investment is to use a percentage of the total revenue or projected revenue.
However, this method may not always be accurate, as different industries require varying levels of investment to achieve success.
Instead, businesses should consider a more comprehensive approach, taking into account various factors that influence the effectiveness of marketing campaigns.
Stage of the business’s growth
Another important factor to consider is the stage of the business’s growth. Start-ups and small businesses may require a higher level of investment to establish themselves in the market, while established businesses may require less investment to maintain their position.
Furthermore, businesses should consider their customer acquisition costs and lifetime customer value to ensure that their marketing investment generates a positive return on investment.
Businesses should regularly review & adjust their marketing investment levels based on their results. This involves tracking marketing metrics such as conversion rates, website traffic, and customer engagement to determine the effectiveness of marketing efforts.
Adjusting investment levels based on these results can help businesses achieve their marketing goals while avoiding overspending.
Determining the appropriate level of marketing investment requires careful consideration of various factors, including marketing objectives and industry trends.
A comprehensive approach that considers these factors, customer acquisition costs, and lifetime customer value can help businesses invest wisely in marketing efforts while generating a positive ROI.
Regular review & adjustment of investment levels based on results can also help businesses achieve success in their marketing efforts.
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