If you're considering starting your own business, you'll have to devote a lot of your initial focus to your marketing efforts, no matter which industry you're in. There are so many different marketing channels in which entrepreneurs can invest their money today. There are standard tools such as telesales, direct mail, and radio ads; then there are new tools like email marketing, search engine optimization, pay-per-click, social media, and affiliate marketing.
This plethora of channels makes it easier to promote a company, but how does one determine the best mix of marketing efforts with constraints in money and time?
Thinking on the Margin
Although figuring out how to spend a startup marketing budget is one of the toughest decisions that many entrepreneurs face, the solution to tackling this problem is quite simple: Invest your money into efforts that will maximize profits. You do this by using an economic concept called "thinking on the margin," which means only thinking about the next increment.
It may seem weird to ask yourself, "How should I spend marketing dollar number 2340?" However, doing so will ensure you make the optimal decision based on your goals and financial constraints. When you think on the margin, the optimal mix of how much money you need to invest in each channel will reveal itself.
The opposite of thinking on the margin is using averages to make decisions. We all do this sometimes, but we rarely make decisions about averages. I've consulted recently with a client who would not invest more money into a social media campaign because it would lower his average profit per lead for the entire campaign. A person thinking on the margin would have invested the extra money into the campaign because the additional revenue from the extra push would have exceeded the cost of it.
How to Find the Perfect Marketing Mix
Here are five steps to "thinking on the margin" and maximizing the marketing efforts of your startup:
1. List your options. Make a list of all of the channels that you may want to use to promote your company. There are dozens of marketing channel possibilities that entrepreneurs can choose from. You may not have the interest, expertise, or financial capital to pursue some of the outlets. For example, I wanted to experiment with infomercial marketing when starting my company Great Black Speakers, but I knew I didn't have enough capital nor the expertise to pursue that option at the time. Look at your current resources and the options within the realm of possibility.
2. Take the test. Now that you have your short list, pick the ones you feel are most promising and experiment with those first. If you pick more, you may spread your resources too thin; pick less and you'll end up investing all of your eggs in one marketing basket. When choosing, try to avoid paralysis by analysis. You'll have time to correct course once you start collecting data.
3. Read the returns. Set up methods to measure and analyze each channel's returns. Remember, think in marginal terms and not with averages. You'll want to track the revenue and cost of each lead as well as the channel. For businesses that use a lot of online marketing, the use of landing pages and analytics packages (such as Google Analytics or KISSmetrics) are a necessity. For offline measurement, simply asking the prospect where they heard about your company will provide valuable information.
4. Rank your efforts. Order the returns for each lead from most profitable to least profitable. Discontinue the least-profitable marketing activities and reinvest that money into more profitable activities.
5. Adjust strategies accordingly. As your marketing budget expands, continue to work your way down the profitability list and add new channels when those returns are projected to be the highest among your best alternatives. Ultimately, the right marketing mix will reveal itself naturally because you are making a rational decision for each dollar spent.
For entrepreneurs, it is more important to live by the "thinking on the margin" principle than worrying about maxing out your marketing dollars completely. As you continue to add variables to the above process, it will become very tedious and possibly unproductive. Remember to keep your analysis simple, as even a crude implementation of this process can do wonders for startup businesses.
Lawrence Watkins is the founder of Great Black Speakers Bureau, a company that helps organizations find African American public speakers for various events. He is also the co-founder of Ujamaa Deals, a daily deal site that promotes African American-owned businesses. After graduating from college in 2006, Lawrence stepped out on a limb and turned down job offers from two Fortune 500 companies to help grow the speaking career of his older brother, Dr. Boyce Watkins. Great Black Speakers was born in January of 2007 and has grown from a roster of 12 speakers to one that includes over 200 of the best and well known speakers in the nation.
The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the world’s most promising young entrepreneurs. The YEC recently published #FixYoungAmerica: How to Rebuild Our Economy and Put Young Americans Back to Work (for Good), a book of 30+ proven solutions to help end youth unemployment.