The $0 Marketing Budget Lie

It has become popular recently to brag about burningmoneyhow large your business has become without spending a single dollar on marketing. If true, such a statement paints a powerful story about how your product resonates with customers. If you don’t spend on marketing, they must be finding you and telling their friends about you! Everyone wants that kind of free marketing.

Unfortunately, when you dig deeper it is almost never true. When someone claims they have never spent on marketing, what they typically mean is that they have never spent on paid advertising. They have likely spent on one of the following marketing channels:

  • Referral programs. Companies like Dropbox and Wealthfront will offer you free service upgrades in return for referring other customers. In some cases they will actually pay you cash. In all cases, these incentives are lost revenue and hence a cost of marketing.
  • PR. If you frequently read about a company in the news, they likely have some kind of public relations help. The best PR firms are very expensive and, even though they position themselves as consultants, those news articles come at a steep price.
  • SEO. Getting a high search rank seems like a great alternative to paying for search ads, right? Yes, but it is hard to do when starting from scratch. Many companies hire SEO experts and firms to help boost their organic ranking, which makes that “free” placement less than free.

There are countless more examples which are not paid advertising, but are still marketing spend. In fact, many companies will spend on paid advertising and still claim they have never spent on marketing. The narrative of “no marketing” is so powerful companies will lie to have it.

In reality, there are remarkably few companies that have grown to substantial size without spending anything on marketing. Almost all of them are communications tools like Skype, Hotmail and Snapchat. Truly viral growth is something that is very elusive in the real world.

Marketing is Not Free

The irony is that spending on marketing is a natural part of doing business. Everyone spends on marketing, because if you didn’t your customers would never learn about your product in the first place. There is no reason to be ashamed of it.

Google is a great example. Google is a household brand and if anyone has “word of mouth” working for them, it is Google. Regardless, one of the largest costs Google incurs is its Traffic Acquisition Cost (TAC), which is jargon for paid marketing. Google pays over $3B in TAC every year which includes over $1B to Apple alone. If Google spends that much for their business, why can’t you?

The only danger in using paid marketing channels, including paid advertising, is if you are paying more to acquire users than you make from them (see The Most Important Equation). If a customer is worth $20 to you, why not spend $5 to acquire them? You still make $15 from that customer and can likely grow much more quickly than if you try to grow without spending.

Advertising exists for a reason: Customers need to learn about your product before they can consider using it. If you are starting a new business how will they learn about it? You should pursue any and all channels to get the attention of potential customers, even if that means spending some money.

Don’t be afraid of paid marketing. Instead, be afraid of having no customers.

Image made available via Creative Commons by Flickr user Purple Slog, although there seems to be some confusion over whether he/she had permission to assign that license. 

2 thoughts on “The $0 Marketing Budget Lie

  1. Beckmania

    Once again, another spot on post Sean! In fact, there are other areas where it’s easy to underestimate ‘cost’ bc there isn’t necessarily a direct charge – partnerships for example. If not really well thought out, these can cost a whole lot more than they produce. I would say ‘free services’ are another – if you build up dependence on something that fails and you have no recourse bc they don’t have enough support etc., well, that’ll cost you!

    Reply
  2. Mark Evans

    It is always interesting to me – someone who offers startup marketing consulting services – about why startups seem loathe to spend money on marketing. They seem to be a good product and a little bit of social media is enough to get the crowds storming the doors. I think it may have to do with a lack of knowledge about how marketing actually works.

    Reply

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