Is Your Marketing Leaving Money on the Table?
Recently I’ve been asked how much content marketing is too much content marketing, and can there be too much of a good thing? Undoubtedly the answer is yes, and it makes me think of a basic principle of microeconomics: diminishing marginal returns.
Imagine a kid who runs into a candy story and is told he can have as much of whatever is in the store as he likes. Unless we’re dealing with an exceedingly strange child, chances are he will run from bin to bin, grabbing gummy bears and pixie sticks, caramels and M&Ms. What the kid likely wouldn’t do would be to sit down in front of the chocolate bars and eat every last one of them, ignoring the rest of the shop. That first chocolate bar would be pretty great. The second and third would likely be okay, but every chocolate bar after that, there’s no added value. That’s why the kid is likely to run around sampling different things, trying everything in the store. While this may be something any business student knows, it’s something too many marketers forget.
Marginal Returns Diminish -- It’s the Law
A common misconception is to continue investing heavily in campaigns that have proven successful. As a marketer, if you see that you’re getting great returns from a campaign it seems logical to keep producing that campaign. But just as a kid gets more enjoyment out of sampling different types of candy, your marketing department could get more revenue out of a portfolio of different types of tactics; as with chocolate bars or webinars, the economic principle of the Law of Diminishing Marginal Returns is the same.
Another way to think about maximizing your marketing campaigns is this: if you double your investment, you won’t double your return. If you get a 7X return investing $1,000 on trade shows, you won’t get a 7X return spending $100,000 -- you’d be lucky to get a 1.5X return at that point. Increasing your investment in any one marketing tactic is not going to give you the same rate of return.
Looking at the graph below, you can see that going from zero investment to one is a 10X increase, but once you’re up to a 10-unit investment, the return is less than 6X. You should think of every marketing program you use in this way. Are there campaigns that are returning the same amount at a 9-unit investment as a 10-unit investment? Are there campaigns you aren’t running that could have huge returns?
The slope of the curve represents the marginal return. The implication is that if you have any program that is at a place on the curve that is steeper than another program, then you can maximize total return by taking investment out of the less effective program (you will lose relatively less return) and putting into the program that is at the steeper part of the curve (you will gain more return than you are losing).
Find your overall marketing equilibrium.
Thinking about the curve of total return, this means you want each of your campaigns to be at the point on their curve where they have the same slope. Using this strategy, you wouldn’t be able to take money away from one campaign and use it more effectively in another. This set of investments represents your optimal portfolio strategy.
Of course, in the real world you don’t have perfect data to represent the return curve for each investment. But you can run programs at various levels of investment and get a sense of what the returns look like. Regular readers might be reminded of a previous article about finding the marketing golden ratio and that certainly plays into this as well. If a particular type of investment has a very high percentage of programs that perform above the minimal threshold, then you are likely in the steep part of the curve; if more programs do not perform well for you, then it is more likely you are seeing diminishing marginal returns from that category.
Be more like that kid in the candy store.
There have never been more ways to interact with your prospects and customers than right now. So scale back one of your larger investments and try something else. Spending all of your money on banner ads? Invest in content or an email marketingprogram. Getting worn out on the trade show circuit? Host your own webinar. In short, always test your margins -; always ask what your return will be by adding investment in a certain program, and think about where else that money could get a better return. Testing like this not only helps exercise your creative marketing muscles, but it provides the peace of mind that there isn’t additional revenue or pipeline left unclaimed.
JON MILLER | Columnist
Jon Miller leads strategy and execution for Marketo. Before co-founding Marketo, Miller was vice president of product marketing at Epiphany and held positions at Exchange Partners and Gemini Consulting. Miller holds a bachelor?s degree in physics from Harvard College and has an M.B.A. from the Stanford Graduate School of Business.