Marketing Costs

Author : Daniel Wadleigh
There is an often misunderstood part of pricing that can seriously damage the profit potential. It is the effects of the costs of marketing a product or service. As an example, many manufacturers commit 20% of price to marketing; certain consumer products which are quite competitive (e.g. laundry soap) may use up to 65% of price towards advertising to stimulate the marketplace. Contractors allocate generally from nothing to 10% of their pricing to marketing (media ads).Marketing costs can consist of:1. Generating stimulus to end-users (leads)2. Commissions on direct sales (sales professional compensation)3. Commissions on sales to distribution.I once stumbled upon a sale, quite by accident. All I had to do was find a contractor to install what I had sold, once a price was negotiated and agreed upon. The contractor commented, "I pay my own sales people 10%," as an offer to me. My reply was, "I generated the lead and the sale and I should get 20%, or I'll find another contractor who wants the business." The point is, he didn't clearly understand the value (or costs) of generating a "sellable" lead. He was used to "getting" most of his leads for free from referrals - which is fine, as much as it works. But, if they aren't calling you, you have to go to them - and that costs money. As long as you have leads (that close) coming in, it doesn't matter how they got there.So, plan on spending (allocating) funds for marketing costs, and reflect those costs in the price. If your marketing costs decrease, either enjoy higher profit margins or lower the price to your customers. Your net margin can be 5% or 15%, it doesn't matter - as long as your volume is high enough to provide the profits that you need or want. Most business people don't figure enough margin to cover vehicle maintenance, call-backs, marketing costs, etc. into their pricing. They fear "pricing themselves out of the market." As elsewhere stated, it is better to enhance your value than to "cheapen" your price.There are thousands of products that "cost" more, but have better value. Do you buy from licensed businesses, or otherwise? Do you always buy from the "cheapest" supplier? Why not? Well, that is the same argument for you to not be the "cheapest" vendor - enhance your value instead.One 'Value" is having personnel that customers want to do business with more than with competitors'. It is very important to have likable personnel. Have you ever gone out of your way to buy from someone you liked doing business with, even when the same goods were available closer, and even "cheaper?" If any of your employees have market appeal, hang on to them. If it costs you more to keep them, consider it a marketing cost!Find some examples of occasions on which you paid more (knowingly) for a similar value, and determine why you did it. Total your annual marketing costs and be sure that it's added after your net margins. Price wars can kill, so, add value and document your claims.Daniel Wadleigh is a nationally published marketing consultant and has programs for start-up and existing businesses including effective web sites, e-mail/database, other non-internet ways to drive them to your website, and low cost ways to get more new customers.Go to: http://www.more-new-customers.com to get free copy of "Marketing to Men vs. Women- the 8 different responses" and a Free copy of "Market Research- 7 Questions to Ask to Start-up and 7 to Ask to Improve Any Business."
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