January 17, 2022

Marketing's Impact on a Business

Let's dig into my advertising simulation spreadsheet. This business, like so many, is stuck.

Over the next five years this business will trend down from $9.5 million to $8.8 million. Variable profit (profit prior to subtracting fixed costs) goes from $2.1 million to $1.9 million.

No bueno.

This company advertises via print, email, and assorted digital channels.

Let's say that somebody wants to double the digital marketing budget for a year. 

Let's compare sales by year. Here's the base case:

  • $9.5 million today.
  • $9.2 million after year one.
  • $9.1 million after year two.
  • $8.9 million after year three.
  • $8.8 million after year four.
  • $8.8 million after year five.
And after doubling digital marketing dollars in year one:

  • $9.5 million today.
  • $9.8 million after year one.
  • $9.2 million after year two.
  • $9.0 million after year three.
  • $8.9 million after year four.
  • $8.8 million after year five.

Here's the base case for profit.

  • $2.1 million today.
  • $2.0 million after year one.
  • $2.0 million after year two.
  • $1.9 million after year three.
  • $1.9 million after year four.
  • $1.9 million after year five.
And after doubling digital marketing dollars in year one:

  • $2.1 million today.
  • $1.9 million after year one.
  • $2.0 million after year two.
  • $2.0 million after year three.
  • $1.9 million after year four.
  • $1.9 million after year five.

As you can see, not a lot changes. This business isn't being saved by marketing, if marketing tactics continue to be employed the same way - with just more expenditures.

Now let's see what happens if we double our digital marketing budget for each of the next five years.

After five years this business is marginally bigger ($9.7 million) and profit is lower ($1.85 million).

This business doesn't respond well to digital marketing tactics (this is frequently the case when you have a customer base age 65+).

Tomorrow I'll show you what happens if you stop offline marketing efforts with this business.


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