The Tribune

By D’Arcy Rahming

Reality check. The marketing budget is often the first thing cut when business is down. It ranks right after you let go as many people as you possibly can. The reason is simple. Marketing does not have good metrics. Business owners and financial managers do not know if the marketing is working or not. They only know that the marketing people are spending a lot of money, which could possibly be used elsewhere.

However, when the marketing budget is cut the business often suffers, because potential customers lose avenues for finding out about the business, while old customers simply forget about it. This is the principle of recency dominating customer loyalty. Or, plainly stated: “What have you done for me lately?” As there are so many types of marketing, the key question is: How do you determine your marketing budget?

In order to make an educated decision you have to know a few things first. Number one is: What does it actually cost you to deliver your product or service before marketing costs? For example, if it cost me $100 to deliver a service before marketing, I need to make sure that any marketing dollars I spend pay for the marketing dollars and the delivery of the service. This leads to the next two questions: What does a customer spend during his first 30 days, and his lifetime, with you?

I make that distinction between lifetime value and 30-day value because it will not only determine your marketing strategy and your customer retention strategy. This customer value will also have an impact on cash flow. The first 30 days are important because often you have to survive monthly, while keeping your eyes on the longer term potential.

These are key metrics, because sometimes you may seem to be losing. But if a customer spends $50 with you initially, and $2,000 over his lifetime with you, it may be worth your while to pay more than $50 to acquire a new customer. This gives you parameters on how much you need to spend to keep this customer. One of the things I learned from marketer Bill Glazer is how much would you cheerfully spend to get a new customer, and to keep an old one. Emphasis on the word ‘cheerful’ because it is more than just about the metrics.

So, when determining your marketing budget, I think you need to do more than add or subtract a few percentage points, and actually find out is your marketing working for you.

• NB: D’Arcy Rahming holds an MBA from the prestigious Kellogg School of Management at Northwestern University. A lecturer at the College of the Bahamas, Mr Rahming has clients in general insurance, retail, the health and medical fields, sports federations and financial services. He is also treasurer of the Bahamas Olympic Committee. To contact him he can be reached at DArcyRahmingsr@gmail.com.