Direct Mail . . . Newspaper . . . Radio . . . Online. There are countless places to spend each advertising dollar. The hard part is determining the most effective medium for your business. It is not a matter of “One Size Fits All.” The response rate for each media type will vary depending on the product or service you offer, your target market, and the characteristics of the community that you are marketing in. Even in the same industry, what works in one place may not work in another.
There are three basic steps to take to develop a marketing plan that works for your business:

1. Have a system for tracking the source of customers and clients.
2. Know the marginal cost of each of your products and services.
3. Identify your target levels and strategy for each customer segment in the diagram below.

Know Where Your Business is Coming From

Client Trust DiagramBefore you can determine the effectiveness of any type of advertising, you need a system for tracking how your customers and clients find you.

The diagram to the right illustrates the likelihood that a potential customer will purchase from you versus one of your competitors. As you can see, the higher the level of trust developed, the higher the probability that they will purchase from you.

I would suggest defining your customer tracking system based on these terms. Your system can be as simple as keeping a running tally on a sheet of paper for each sale or new customer for each category. An Excel spreadsheet is another excellent and simple way to track this. If you have an existing customer database, point-of-sale program, or accounting system, add a field for each record to track this.

Here’s the trick. You have to ask your customers and clients how they heard about you and you need to be consistent. After they give you the first answer, ask them if they heard about your business from any other source. I will be covering the importance of this in next month’s article, “Marketing to a Critical Mass.”

After you start tracking this, you will get a much better idea of what avenues of advertising are working for you. When at all possible, you also want to track the lag time between the day the marketing piece is distributed to the time of purchase.

Know Your Gross Margin

Let’s say that you have been tracking where your customers are coming from and there is one area of advertising that hasn’t been getting great results but pays for itself. Should you keep it?

Maybe not. No matter what type of business that you are in, there is a cost of doing business. There is a certain percentage of every dollar in revenue that goes to cover your overhead costs. Stephen King with Growth Force gave an excellent class on this topic for the Business Education Committee from the Kingwood Chamber last month.

In order for advertising to truly “pay for itself,” it must cover its own cost plus the marginal cost of doing business. But the point of advertising is to make your business money, not just pay for itself. If it is truly “break-even,” maybe it is time to look at other options.

Targeting Trust in Your Marketing Plan

When I sold real estate, the general rule of thumb for someone starting in the business was that you work really hard for three years and then it starts getting easier. At that point, referrals and repeat customers become an increasingly larger part of your business.

I think this principle is true regardless of the industry, and it goes back to the level of trust between you and your customer as illustrated in the diagram above. If the purchase decision involves a low dollar amount, it will require a lower amount of trust and a shorter amount of time to develop.

One thing to keep in mind when marketing to the Kingwood and greater Houston area is that it is a very transitory community. People are constantly being transferred in and relocated out. In other areas, established businesses can often take it easy after they have built up their reputation and can rely on word-of-mouth.

What that means for you as a business owner in the Houston area is that established businesses constantly need to work on adding to their customer base. On the flip side, new businesses will probably have an easier time breaking into the marketplace.

So back to the original question, where do you put your money. If you want a truly effective marketing campaign, a plan for each customer source in the trust diagram should be developed. However, often a business marketing plan is simply centered around traditional advertising, which has a low level of trust and effectiveness.

My suggestion as we come into the holiday season is to review who your current customers are and develop a plan for marketing to them for repeat business and referrals. Next month’s article will be on “Marketing to a Critical Mass” and I will cover strategies for using different mediums as well as developing each of the customer sources.

In the meantime if you would like help with your marketing plans, do not hesitate to give me a call.