How can you ensure the money you spend on marketing brings in new sales? In other words, how can you make sure there’s a return on your investment?
To answer that question, we need to dig into the third reason why lack of professional support is a common operational problem a business owner deals with:
Reason #3: Lack of Professional Support Can Limit Your Understanding of the Accounting and Tax Effects of Sales and Marketing
Business owners pay attention to the return on their investments, if they want to stay in business.
We often forget that the numbers tell the story of how successful our sales and marketing efforts have increased the bottom line.
A rule of thumb is that if you’re going to make a business investment, you should recoup at least 50% of it over the next 12 months.
With the current tax laws, you’ll be able to write-off 100% of the investment cost.
So, what does that mean for your marketing?
From a tax standpoint, it means you need to have a system to track your marketing effort and documentation that substantiates the tax deduction. How do you track your marketing effort to take advantage of the tax laws?
Marketing performance tools can provide your business with an opportunity to take marketing efforts to the next level. Tracking and planning are essential aspects of most marketing campaigns, and a successful business owner needs to be able to formulate a plan to maintain highly profitable marketing efforts. Having the necessary tools to assist you in this task is essential for maximum efficiency. Dashboards, ratio analysis, and metrics are some tax-deductible tools that you can use to bounce back from wasted marketing dollars.
Dashboards are a common marketing performance tool to track and measure sales performance. Dashboards are software programs that can be integrated for use in sales calls and provide the salesperson with statistics regarding his/her performance, such as the number of calls made, the closing ratio and accumulated commissions. The advantage to using a dashboard system is that it allows the individual marketer to remain focused and on task, while having a constant reminder of her performance and what she still needs to accomplish. Documenting your current sales and marketing process will allow you to better utilize dashboard software.
Dashboard software provides a simple way for you to track the performance of employees and document your marketing expenses such as commissions and pay rates, travel related expenses, etc. to substantiate tax deductions.
You should also look at the relationship between sales and costs. This is called ratio analysis. A typical ratio is the gross-expense ratio. It represents the percentage of sales that are spent on marketing. For example, if the gross monthly expenses in a period are $100,000 and the gross income is $200,000, the gross-expense ratio is 50 percent ($100,000 divided by $200,000).
Closely monitor the ratios of advertising and marketing expenses to gross sales. If your marketing expenses increase over a period of time, but sales remain constant, you may decide that the marketing expenses were inefficient. Doing a ratio analysis will allow you to see where the marketing campaigns are successful.
Accounting information such as the gross-expense ratio will help you make marketing decisions. By looking at past financial results, you can budget future dollars for marketing campaigns.
Metrics tools provide a way for you to evaluate the performance of your marketing campaigns. In the same way that a dashboard records important statistical data, the various metrics used in marketing management interpret the data to provide meaning and a possible indication of changes that need to be implemented.
If you want to make sure your marketing dollars effectively attract more customers, you need to know your Customer Acquisition Cost (CAC) or what it will cost to deliver your goods and services to a new customer. Your CAC should include all sales and marketing costs (e.g., online, advertising, salary, commission, bonus, overhead, etc.) during a certain period of time divided by the number of new customers in that period. You should master the task of computing and tracking your:
Customer Acquisitions Cost (CAC)
Time to Payback CAC
Marketing % of Customer Acquisition Costs (M%-CAC)
Ratio of Customer Lifetime Value to CAC (LTV:CAC)
These metrics and analysis tools will allow you to analyze performance and forecast results. For instance, metrics used in website marketing gauge the effectiveness of advertisements by tracking the click-through ratio, the cost per click of each ad, return on investment and cost per order.
A marketing benchmark is a standard measure used to compare your company marketing results to your industry or competition. Benchmarks are business metrics calculated internally and compared to industry statistics or competitive intelligence. Benchmarks are published for industry associations and from primary sources such as annual reports of a competitor. When we are thinking about our CAC, we are thinking about business growth.
Most business owners fail to look at whether they are getting a return on their investment in marketing and so miss out on a marketing cost boomerang. However, you can bounce back from your marketing failures with these tax-deductible tools. Get started today!
Access our FREE Operations Starter Kit to calculate your company’s Marketing Return on Investment (MROI). It’ll show you how to calculate the metric, so you can evaluate whether your current marketing efforts contribute to the bottom line. It’ll also help you decide what changes are needed going forward.
Don’t keep throwing money at marketing without calculating your return on investment. It’s like throwing a boomerang that never comes back. You’ll be waiting for sales that will never happen.
If you want someone to guide you through the simple process of evaluating the performance of your marketing campaigns, attend Vendor Boot Camp©. You’ll rest easier at night knowing that the money you spend on marketing brings in a profit, not just a tax deduction.