Sales and marketing costs are among the largest expenses in running a business, and they can be the hardest ones to evaluate.
How do you know if the time and money you are spending on marketing and sales is improving your bottom line? The truth is that ROI (return on investment) for marketing and sales spending is notoriously difficult to calculate. But it is possible to determine if your overall approach is working, and you can analyze your costs over time to get a picture of whether or not your efforts are effective. You can also track separate campaigns and see which ones result in a boost in sales.
To start with, let’s define these two terms.
- Marketing is any activity that creates a prospective customer—a prospect.
- Sales is an activity which turns a prospect into a buyer—a customer.
Analyzing the effects of your marketing and sales spending
It is important to keep track of these two activities separately so that you know how much you are spending on each category. First, set up your accounting systems so that you can easily see how much you spend for marketing, and how much for sales activities. If you run separate marketing campaigns, it’s wise to track the expenses of each one separately as well.
The second step is your sales reporting. It’s critical to be able to track your sales on a daily, weekly, and monthly basis, and compare them to last week, last month, and the same week and month last year. You will also want to compare them to your sales goals to see how you are doing. Otherwise, you won’t know if your numbers are going up or down. Those comparisons are critical.
Enter all these numbers into Excel to prepare a line chart of your expenses (marketing and sales separately) and sales revenue over time. Do you see a trend? When you ran that special campaign 6 months ago, was there a corresponding boost in sales revenue (it could be a bit down the line, say 30-60 days)? This will allow you to see any trends or patterns in sales revenue that is affected by your sales and/or marketing strategy.
Of course, increasing your sales is not the actual goal of your marketing efforts—increasing profits is the goal. So, it’s important to make sure that the sales you are gaining are profitable sales. To do this, add a line to your graph for gross profit, and you will get the picture very quickly.
What about the value of your time?
For many of us, especially those of us in service businesses, our marketing and sales efforts are more personal—they are mostly made up of our time doing networking, communicating via social media, talking to potential clients, etc. There’s no “cost” for this reflected in our accounting systems—but it is a real cost, and it’s important to know if your efforts are effective.
Here’s a suggestion that has worked for many of my colleagues and clients. For 90 days, commit to recording your time and tracking how many hours you spend on each marketing and sales related activity.
Then, graph the number of hours that you spend each week for each category that you are active in. Don’t just lump it all together—break out networking, social media, etc. separately so you can see what is working and what is not.
On the same graph, record weekly billings, weekly new client proposals, or whatever metric is most meaningful to you, and compare that trend with you are spending your time. This is a great way to see if you are getting the most out of your efforts and will let you know where to spend more time and where to spend less.
It takes money to make money
Marketing and sales efforts are a critical part of the success of any business, and they’re often one of your biggest costs. The trick is to spend time and money on the activities that really make a difference to the bottom line. Over time, these graphs can be invaluable in making sure you do just that.
JoAnne Berg, CPA is the founder/CEO of Peer Coaching Network, Inc. in Carlsbad, California. She is a trusted business advisor with over 30 years of experience as an entrepreneur, CFO/COO, and CPA/advisor to closely held businesses. Read her blogs at The Art of Small Business. You can follow her on Twitter @JoAnneBerg and on Facebook.