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Ways Marketing Can Help You Increase Profits

It sounds fairly simple. Better marketing means more sales, which means bigger profits. No surprise, then, that many companies looking to improve profitability start looking at their marketing sooner or later. Yet increasing profitability (rather than raw revenue) is not quite as simple as doing more marketing. Maximising profit means identifying ways to make marketing more effective -- companies must market smarter, not just harder. Let's see how this works in practice.

Identifying the Low-Hanging Fruit

Possibly the simplest way to vastly increase the return on every marketing dollar is to spend those dollars marketing to the "low-hanging fruit" of your customer base, rather than marketing to all and sundry.

As market research firm Play MR puts it, the market according to a petrol station operator contains a very important group of people: those who love the convenience of shopping at petrol stations, and who are willing to pay more to do it. (source)

By identifying and targeting this group of people, the ones who are already interested in the petrol station's products, each marketing dollar generates a much higher return. Rather than falling on half-deaf ears, the marketing message reaches people who are already just a few steps away from opening their wallets.

In short, it's the 80/20 principle, though the numbers are often nowhere near 80 or 20 percent. Smart marketers realise that a large group of their customers account for a small percentage of sales, while a small group of their customers accounts for a large percentage of sales. Understanding this, and focusing on the small group, allows marketers to generate enormous returns on investment.

Adding Upsells to the Sales Process

The simplest possible way to do all this is via something known as the "upsell". After all, the customer most likely to purchase from you is the one who is currently doing just that -- the one who has his wallet open right now, as he is taking some money out and giving it to you.

Therefore, the most efficient marketing tactic is usually to market to this customer, the one who is currently buying. When someone goes to purchase, you simply offer them an additional service or product which will enhance their experience with what they are currently buying.

For example, the fast food folks practice this every day, with their "would you like fries with that?" when you go to order a burger. A customer at that moment is obviously interested in the company's food products, therefore there is an excellent chance they will be receptive to buying a side dish that will complement the hamburger they are about to enjoy.

Sell to Existing Customers -- Increase Customer Retention

All businesses spend a great deal of time and energy focusing on generating new leads, whether through a formal lead generation process or by advertising in hopes that more "leads" will walk through their front door and convert into customers by buying petrol.

Unfortunately too many companies focus on getting new leads, and ignore the most valuable market they have, the second-lowest hanging fruit: those who have purchased from the company in the past!

Industry experts say that selling to a previous customer is 50 percent easier than working with new leads. Therefore, a highly profitable way of generating new business is often to reach out to your new customers, and try to secure their repeat business.

Increasing customer retention usually involves efforts along the lines of contacting previous customers to alert them to special deals and new products, sending new customers a thank-you letter or thank-you email, and ensuring customer service leaves anyone who calls feeling glad they did business with your firm.

Reinvest Cost Savings

Let's consider a hypothetical case, where implementing these measures results in the marketing department only needing to spend $0.90 per $5 worth of gross profit the firm makes, instead of the $1 they previously needed to spend. This represents a savings of 10%.

If the marketing department reduces their expenditures to $0.90, they have saved $0.10. This is probably welcome news at the annual budget meeting, to be sure. However, they could also maintain their expenditures at $1, and -- due to the improved efficiency of the new marketing methods -- they would probably bring the company $5.56 in gross profit instead of $5.

In other words, while they could save $0.10, reinvesting that $0.10 in more marketing would bring in $0.56.

Here we have the real benefit of more marketing efficiency. While there are many ways to decrease the cost of marketing, the goal is almost never to decrease the overall expenditure. After all, marketing is the engine which brings in money for the firm! Rather, the idea is to vastly increase the amount of money brought in, by increasing the ratio of dollars spent to dollars earned.

Image source: flickr.com

alexpejak

About alexpejak

Alex Pejak is an economist currently working on a few projects in Australia. She is interested in topics related to market research and project management.

alexpejak

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