June 11, 2017
“Stopping advertising to save money is like stopping your watch to save time.” – Henry Ford, 1863-1947, American industrialist and founder of the Ford Motor Company. Henry Ford had it right. But he also knew how much to spend so it wasn’t wasteful.
In 2009 I began working for a Florida-based real estate company as a communications manager that was spending upwards of $50,000 a month on Google advertising to generate sales leads. They were selling homes and condos in Costa Rica for an average price of $200,000. After five years they had generated just over $40 million in pre-construction sales, taking in a little more than $14 million in deposits.
In late 2009, when the chief marketing officer took ill, I was asked to step into that role. My first order of business was to stop the bleeding as I recognized the company was wasting money by the fistful. They might as well have been flushing cash down the toilet.
When an industry establishes a benchmark of spending between 3% and 5% of potential gross sales on marketing, spending 7.5% is indicative of a person who has no idea of what they’re doing. To me it’s borderline criminal, especially considering how much money was actually being taken in deposits.
Over a five year period the company spent roughly $3 million; approximately 22% of all money they brought in. Based on their sales, the maximum amount they should have spent was $2 million or 14% of the total money they took in. In real dollar terms the company wasted $200,000 year; nearly $17,000 a month.
When I started digging into the numbers and questioned the CEO about them, his response to me was incomprehensible. He argued that there was enough profit built in to what they were selling that it didn’t matter how much they were actually spending.
Their shotgun approach of simply throwing things against the wall and see what sticks was flawed.
By the time I took over marketing, it was simply too little too late. Despite the fact I was able to put a tourniquet on their spending and was able to reduce their costs to $5,000 a month to generate the same number and quality of leads, I simply couldn’t do it fast enough to overcome the years of neglectful overspending.
Within two years the company went out of business thanks to their thoughtless spending and other bad management decisions.
Unfortunately their approach was one that many small companies take today in how they market and advertise. If you are one of these business owners, please pay close attention. You too can stop the bleeding.
First and foremost, if you are not adept at learning about what it will take to solve your problem, do not be afraid to seek out the assistance of a marketing or advertising specialist who can understand your situation and offer sound advice on how to fix it.
Remember, today’s successful business owner, whether they are engaging specialized outside agencies or handling marketing and advertising in house, will use Web-based and social media tools to identify and understand their customer and then go after them with a laser focused strategy and approach.
Like I said earlier, Henry Ford had it right. But he also knew how not to waste money.
How much money are you wasting?