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Beware the Zuckerbook money-doubling machine: spotting a bad ad spend

Promises of doubling your money with Facebook ads is actually a pretty bad bet: why the “breaking even” promise of an ad cost is garbage.

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A Not So Great Pitch

Not too long ago, I saw an ad for Facebook advertising. The ad featured a local small business. I forget the exact numbers and business name, although it was something along the lines of “Mary’s Cookies uses Facebook advertising. Recently she invested $2,200 in ads and received over $4,500 in sales!”

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When I play blackjack in Vegas, I am happy if I double my money. If a stock I own doubles in value in a year or two, again, nothing but smiles. But, if my business only returns two times what I put into marketing it, I will be crying in my beer. Perhaps a solopreneur with no other overhead can afford marketing expense approaching 50% of sales, but there aren’t a whole lot of other companies that can survive, let alone thrive, if burdened to that extent. How about your company?

Know Your Key Operating Metrics

A lot of companies that I consult for don’t initially know and understand their key metrics. I get it – they are busy doing stuff, and analyzing numbers falls in the category of things to do that are important but not urgent. However, it is one of the first things we straighten out, because it is not simply important for a business owner to know her key operating metrics, it is mission critical. Marketing as a percentage of sales is one of those key metrics.

Business owners must be vigilant in measuring all of their marketing initiatives so that their calculations are as accurate as possible. I can attest that it is easy to think things are going well, simply because the cash register is ringing, while not recognizing that you have a broken business model due to the cost of acquiring customers being far out of whack with their expected lifetime value.

It happens, so measure and manage.

Wildly Varying Marketing Expense

Marketing and advertising expense as a percentage of sales varies considerably by industry, and even among companies within the same industry. Some mature companies spend aggressively to maintain their brand, while others spend very little after they “arrive” and choose to just, in the words of Seth Godin, “milk the cow.”

Companies knocking the cover off the ball may spend liberally because the money is flowing, while one of the first things struggling companies cut is discretionary marketing spending (an executive decision so foolish and so common that I always think of lemmings rushing toward the cliff when the announcements start rolling out during tough economic times).

A 2014 survey published by the American Marketing Association and Duke University found that companies with less than $25 million in annual revenue (sales) spent an average of 11% of their revenue on marketing. Companies with greater than $25 million in annual revenue spent only 9%. The same study found that business to consumer (B2C) product companies spent on average 16.3% of their annual revenue on marketing, outpacing B2C service businesses, which came in at 10.9%. Business to business product and service businesses checked in at 10.6% and 10.1%, respectively.

The Occasional Outliers

9%, 10%, 11%, 16%, but not 50%! Granted, there are some high-flying technology companies that spend an enormous portion of their sales on marketing and advertising. Salesforce.com and Twitter are among them, spending 53% and 44%, respectively, in 2014.

Both companies are essentially still in land grab territory, spending aggressively to capture relatively new markets. Salesforce.com has a product that, once installed, carries significant switching costs. I suspect the average lifetime value of their customers is sky high.

We didn’t talk about that with Mary’s Cookies.

Perhaps the $4,500 in sales represents a lot of new customers that will stick with the company for a long time and generate plenty of additional sales. In that case, solely looking at the marketing spend relative to the immediate uplift in sales doesn’t do the advertising investment justice.

Twitter is presumably spending big to build out their network, which is understandable – more participants in a network equals greater network effects, i.e., an overall enhanced user experience. Although 44% still strikes me as high for Twitter, I’ll give them the benefit of the doubt.

Still, these are extreme outliers. 10% is a much safer percentage to apply to any business USA selected in a vacuum. And, no offense to Mary, but it’s hard to conceive of her cookie company carrying the high gross margins and high switching costs enjoyed by the software as a service industry.

Another Questionable Pitch

Over the years, I have bought a lot of advertising – radio, billboard, magazine, newspaper, banner ads, AdWords … you name it, I have probably tried it. Okay, that’s not true. I have yet to name a stadium, burn my message in the air with a sky writer, pay someone to tattoo my company name on her forehead… But, I have thrown a lot at the advertising wall over the years, just trying to see what works.

If you’ve also been foolish enough to buy a lot of traditional advertising (which I define as old, boring print advertising that rarely works any longer), no doubt you have heard a favorite closing line of their ad sales people. They ask for your company’s average sale price and then compare it to the cost of the ad buy. They love to be able to say, “You only have to make one sale to break even!”

No joke, I have heard this line no less than 50 times over the years. Breaking even is always pitched as a positive. And, that is one way to look at it – after all, it is better than losing money. Another way to look at the break even outcome is that if you consistently offset 100% of your sales with marketing expenses you are going to have a lot of free time soon ‘cause either your business ain’t gonna make it, or you won’t be in charge of its marketing and sales efforts. The goal is to do a tad better than “break even” with your marketing budget!

Okay, Maybe this Zuckerbook Money Machine Thing is Worth a Spin

Always anxious to play the optimistic fool role and throw more stuff at the advertising wall, I was not deterred by the unimpressive Mary’s Cookies case study.

One of my companies is experimenting with Facebook ads right now. Our target marketing expense in the company is, believe it or not, 10% of our sales. This is a new company and we aren’t certain exactly what our target ideally ought to be. So, we are defaulting to that safe moving target of 10%. We are not going to blow our budget Twitter-style.

At the same time, we want to be careful not to spend too little and find out when it is too late that we haven’t built the sales funnel we projected. Our early results are actually very encouraging. Who knows, if we hit our target with Facebook ads, you may soon see our company featured in a Facebook ads case study. Sorry, Mary’s Cookies. You had your undeserved run.

Try Stuff and Measure, Measure, Measure!

Or, this would be a good time for Mary to say good riddance to the Zuckerbook money-doubling machine. She should throw some other things at the advertising wall in an effort to find an approach that works, marketing initiatives that throttle her sales engine, along with an acceptable customer acquisition cost. AdWords, billboards, naming stadiums … The same advice applies to your business – don’t be afraid to try different marketing initiatives.

Be vigilant and measure the results. Learn and understand your metrics. Discover what works and press the pedal. If that happens to be the Zuckerbook money machine, have it. Just don’t ask to be the feature of their next case study. I called dibs. But, hey, I hear Subway is looking for a spokesperson.

#AdBudgeting

Brett is The Startup Shepherd – part startup consultant, part angel investor/financier, and part business lawyer. A six-time entrepreneur and recovering “left brainer,” Brett particularly enjoys helping startups and rapidly growing socially-conscious companies.

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1 Comment

1 Comment

  1. Justin Callaway

    September 18, 2015 at 4:53 pm

    I’m having a much different experience. With very minimal ad expense and very high return. I’m spending $3 per $50 sale. Once profit is driven, I gain about $30. So roughly 10% with no actual cost or work that I have to put into it. My worry is… I’m spending $100/day with this method. If I were to invest $200/day would my earnings double? Or would they tank? It’s a tricky shark.

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Business Marketing

Audio branding: Is this the next big boost in brand recognition?

(BUSINESS MARKETING) Brands have invested heavily in audio branding in 2021, here’s how that is changing up the branding rankings for businesses.

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Media consumption and engagement with brands across digital platforms is increasing, according to sonic branding agency amp; and companies investing in audio branding are creating a significant competitive advantage. The Best Audio Brands (BAB) index created by amp uses 5 key criteria to measure audio investment performance: Customer recognition, customer trust, customer experience, customer engagement and customer belonging. The agency claims that companies investing in high quality audio assets for their brands have gained ground by establishing a recognizable audio identity.

Michele Arenese, amp CEO said, “Making a brand heard is more important than ever before. The past 18 months have accelerated the importance of sound and voice as vital elements of the brand identity and customer experience toolbox. Meaningful and purposeful brand communication takes advantage from a ownable and authentic sound ecosystem.”

For the second consecutive year, Mastercard ranked highly across all key criteria measured by the BAB and topped the list. Other brands that fared well on this year’s index were Netflix, which moved up 27 places by using it’s famous “ta-dum” more widely and Coca-Cola which collaborated with Tyler the Creator and invested more in bespoke music. In addition, 5 new brands to make the top 10 this year were Audi, Mercedes, Netflix, Hyundai and Siemens. The highest climbing brands were in the financial sector: HSBC, American Express and J.P. Morgan. The highest climbing sector, however, was beverages followed by automotive. Brands that dropped in the rankings this year were Google, Amazon, Colgate, Goldman Sachs, and Danone.

Björn Thorleifsson, Head of Strategy & Research, amp said: “This year has shown that those who were already embarking on their sonic branding journeys have increased their lead on trailing rivals – now clearly falling behind. Given the evolving ability of sound to reach consumers whatever the device or channel they’re on, we expect to see increased investment from brands looking to stand out amongst the online noise. There are already best practice examples from leaders, such as Mastercard, and we’d encourage those who want to improve brand recognition and even performance, to adopt a little less conversation on sonic branding, and a little more action.”

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Business Marketing

Buffer’s four-day workweek experiment: Boost or bust?

(BUSINESS MARKETING) After trying out a four-day workweek last year, Buffer is moving forward with the format going into 2021, citing increase in productivity and work-life balance.

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Man working in office with headphones on, making use of flexible four-day workweek.

The typical five-day workweek is a thing of the past for Buffer, at least for now. The company has decided to implement a four-day workweek for the “foreseeable future.”

Last year, the company surveyed its employees to see how they are dealing with the ever-changing landscape of the pandemic and the anxiety and stress that came along with it. They soon learned employees didn’t always feel comfortable or like they could take time off.

Employees felt guilty for taking PTO while trying to meet deadlines. Juggling work and suddenly becoming a daycare worker and teacher for their children at the same time was stressful. So, Buffer looked for a solution to help give employees more time and flexibility to get adjusted to their new routines.

Four-Day Workweek Trials

In May, Buffer started the four-day workweek one-month trial to focus on teammates’ well-being. “This four-day workweek period is about well-being, mental health, and placing us as humans and our families first,” said Buffer CEO and co-founder Joel Gascoigne in a company blog post.

“It’s about being able to pick a good time to go and do the groceries, now that it’s a significantly larger task. It’s about parents having more time with kids now that they’re having to take on their education. This isn’t about us trying to get the same productivity in fewer days,” Gascoigne said.

Buffer’s one-month trial proved to be successful. Survey data from before and after the trial showed higher autonomy and lower stress levels. In addition, employee anecdotal stories showed an increase in worker happiness.

With positive results, Buffer turned the trial into a long-term pilot through the end of 2020. This time, the trial would focus on Buffer’s long-term success.

“In order to truly evaluate whether a four-day workweek can be a success long-term, we need to measure productivity as well as individual well-being,” wrote Director of People Courtney Seiter. “Teammate well-being was our end goal for May. Whether that continues, and equally importantly, whether it translates into customer and company results, will be an exciting hypothesis to test.”

Trial Results

Company Productivity
Buffer’s shorter workweek trials showed employees felt they had a better work-life balance without compromising work productivity. According to the company’s survey data, almost 34% of employees felt more productive, about 60% felt equally as productive, and only less than 7% of employees felt less productive.

However, just saying productivity is higher isn’t proof. To make sure the numbers added up, managers were asked about their team’s productivity. Engineering managers reported that a decrease in total coding days didn’t show a decrease in output. Instead, there was a significant output increase for product teams, and Infrastructure and Mobile saw their output double.

The Customer Advocacy team, however, did see a decline in output. Customer service is dependent on customer unpredictability so this makes sense. Still, the survey showed about 85% to 90% of employees felt as productive as they would have been in a five-day workweek. Customers just had to wait slightly longer to receive replies to their inquiries.

Employee Well-Being
With more time and control of their schedules, Buffer’s survey shows an increase in individual autonomy and decreased stress levels reported by employees. And, the general work happiness for the entire company has been consistent throughout 2020.

What’s in store for 2021?

Based on positive employee feedback and promising company results, Buffer decided it will continue the company-wide four-day workweek this year.

“The four-day work week resulted in sustained productivity levels and a better sense of work-life balance. These were the exact results we’d hoped to see, and they helped us challenge the notion that we need to work the typical ‘nine-to-five,’ five days a week,” wrote Team Engagement Manager Nicole Miller.

The four-day workweek will continue in 2021, but the company will also be implementing adjustments based on the pilot results.

For most teams, Fridays will be the default day off. For teams that aren’t project-based, their workweek will look slightly different. As an example, the Customer Advocacy team will follow a different schedule to avoid customer reply delays and ticket overflow. Each team member will still have a four-day workweek and need to meet their specific targets. They will just have a more flexible schedule.

Companies who follow this format understand that output expectations will be further defined by area and department level. Employees who aren’t meeting their performance objectives will have the option to choose a five-day workweek or might be asked to do so.

If needed, Fridays will also serve as an overflow workday to finish up a project. Of course, schedules will be evaluated quarterly to make sure productivity is continuing to thrive and employees are still satisfied.

But, Miller says Buffer is “establishing ambitious goals” that might “push the limits” of a four-day work week in 2021. With the world slowly starting to normalize, who knows when a four-day workweek might reach its conclusion.

“We aren’t sure that we’ll continue with the four-day workweeks forever, but for now, we’re going to stick with it as long as we are still able to hit our ambitious goals,” wrote Miller.

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Business Marketing

10 easy steps to get into Instagram marketing

(BUSINESS MARKETING) Want to up your social media marketing game? Start better with Instagram for your business using these easy tips to quickly get established.

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When Instagram first came on the scene, it was simply a place to share pictures of your cat or a pie that you just baked. While it still is a place for that kind of content, it has also grown into a platform where one can influence others and build an empire.

So, if you’re looking to step up your social media marketing game through use of Instagram, look no further than using these 10 steps from Neil Patel.

  1. Switch to a business profile: This is super easy and can be done in just a few clicks. Switching from a personal to a business profile gives a better look at your followers through Insights, allowing you to see analytics and impressions. It also adds a contact feature that takes a visitor right to an email draft to you – just like it would on your website. All this and it makes it possible to publish ads.
  2. Use free marketing tools: Because Facebook owns Instagram, they operate kind of similarly. As mentioned in #1, Insights allows for a deep dive into personalized analytics to see what kind of posts are clicking with your audience and which aren’t. That way, you know what kind of content to continue with and what to do away with.
  3. Post product teasers: There are a variety of ways to do this, including posting about flash sales or linking business platforms that sell your product to make it easier for your customer to shop. The trick here is to not be pushy, but instead be enticing and make the post convenient for your consumer.
  4. Create a sponsored ad: Like Facebook, you can post ads and include a specific budget of what you want to spend. You can showcase one ad or multiple with the carousel feature. You can also target the exact demographic you’re looking to hit.
  5. Instagram stories: These last 24 hours and don’t have to be as “fancy” as a regular post. Give followers a glimpse into your brand with behind-the-scenes shots, polls, fun questions, etc. Make them feel like they’re part of the experience and use this as a way to tell your brand’s story.
  6. Partner with influencers: Work out a deal with influencers who have a decent following. Send them one of your items in exchange for them posting a photo of the item and tagging your brand. This will reach their whole followership and build your credibility.
  7. Collect user-submitted photos: Share photos posted by customers loving on your brand or product. Either share them to your story, or use a regram app to repost customer photos to your feed. It’s basically free advertising for your product.
  8. Hashtags: Come up with an interactive hashtag solely for your brand. Think in terms of verbs (a la Nike’s “Just Do It”). It can be punny or practical, but something that people attribute to your brand and your brand only.
  9. Timing and over-posting: Look into the best times to post – this is when your users are most active. It will be helpful to use Insights to understand when your time to shine may be. According to SimplyMeasured, the worst days to post on Instagram are Wednesdays and Sundays, while Mondays and Thursdays are the best days to post. Also, don’t over post. It’s annoying and it’s always best to err on the side of quality over quantity.
  10. Track the right metrics: Insights do no good if you aren’t looking at the right data. You need to keep tabs on whether or not what you’re doing is increasing your follower growth as well as growth for your interaction. With research, use of Insights and a little trial and error, you’ll get yourself to where you need to be.

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