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ASSESSING RISK WITH YOUR MARKETING DOLLARS
By Gary Hennerberg
Marketing investments can be the most rewarding and productive of anything you do for your business, but understand, too, that marketing can carry very significant risk.
Think of yourself as a "marketing investment portfolio manager." Your marketing costs are like a mutual fund of investments. You invest a certain amount at the beginning of the year and one year later your money should have grown. Except in the case of marketing, it's likely the money you invest today will have a pay back—or squandered loss - in just days, or even hours.
Your marketing investment portfolio needs balance. Some of your marketing expenditures should be "low risk." Some should be of "moderate risk." And from time-to-time a small portion should be considered "high risk." Here's what characterizes each category:
1. Low Risk. These marketing efforts have a known payback. If you've used a certain approach before and it has worked, use it again. When you're confident of the results, your marketing investment falls in a low risk category. Probably half or more of your marketing investments should fall in a low risk category. A control direct mail package would be an example of a low risk marketing effort: The offer and creative are proven, and you continue to mail it to proven lists. The results should be fairly predictable.
2. Moderate Risk. Moderate risk involves taking a known element from your low risk marketing efforts and making a slight change. If you've had success with your control direct mail package, moderate risk would involve testing a change to one of the elements, such as new creative but with the proven offer and lists, or a new offer using the proven creative and lists, or testing new lists with the control package.
3. High Risk. If you've never tested a marketing approach, and you're experimenting with it, this will be high risk. You are unable to forecast the results. With high risk marketing dollars, you must be prepared to lose every dollar and get no possible return on investment. If your company is a start up, or has never marketed before every dollar you spend is likely to be high risk. Use your dollars carefully. Test several approaches, but in small increments. Roll-out what works and either refine or toss aside what doesn't work.
An ideal balance of marketing investment management will be dependent upon several factors. An established business may allocate 60 percent of its spending to low risk programs, 30 percent to moderate risk, and 10 percent to high risk. A start-up company, by virtue of having no experience, will be in a 100 percent high risk category at first. But as experience is gathered, the level of risk will fall.
By Gary Hennerberg
Marketing investments can be the most rewarding and productive of anything you do for your business, but understand, too, that marketing can carry very significant risk.
Think of yourself as a "marketing investment portfolio manager." Your marketing costs are like a mutual fund of investments. You invest a certain amount at the beginning of the year and one year later your money should have grown. Except in the case of marketing, it's likely the money you invest today will have a pay back—or squandered loss - in just days, or even hours.
Your marketing investment portfolio needs balance. Some of your marketing expenditures should be "low risk." Some should be of "moderate risk." And from time-to-time a small portion should be considered "high risk." Here's what characterizes each category:
1. Low Risk. These marketing efforts have a known payback. If you've used a certain approach before and it has worked, use it again. When you're confident of the results, your marketing investment falls in a low risk category. Probably half or more of your marketing investments should fall in a low risk category. A control direct mail package would be an example of a low risk marketing effort: The offer and creative are proven, and you continue to mail it to proven lists. The results should be fairly predictable.
2. Moderate Risk. Moderate risk involves taking a known element from your low risk marketing efforts and making a slight change. If you've had success with your control direct mail package, moderate risk would involve testing a change to one of the elements, such as new creative but with the proven offer and lists, or a new offer using the proven creative and lists, or testing new lists with the control package.
3. High Risk. If you've never tested a marketing approach, and you're experimenting with it, this will be high risk. You are unable to forecast the results. With high risk marketing dollars, you must be prepared to lose every dollar and get no possible return on investment. If your company is a start up, or has never marketed before every dollar you spend is likely to be high risk. Use your dollars carefully. Test several approaches, but in small increments. Roll-out what works and either refine or toss aside what doesn't work.
An ideal balance of marketing investment management will be dependent upon several factors. An established business may allocate 60 percent of its spending to low risk programs, 30 percent to moderate risk, and 10 percent to high risk. A start-up company, by virtue of having no experience, will be in a 100 percent high risk category at first. But as experience is gathered, the level of risk will fall.
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