GREAT MARKETING DOESN’T COST MONEY. IT MAKES MONEY.
Every company needs marketing. No product, service or idea can make its way into the world without marketing. But many businesses don’t know whether to treat marketing as an investment or an expense. It’s complicated, so let’s simplify it.
Small- and mid-sized businesses, in particular, struggle with this concept. They want to increase sales in a cost-effective way, but they’re afraid of “throwing money away” on marketing campaigns. They get caught up in the expense of marketing and lose sight of the bigger picture—the return on investment (ROI).
What Is Marketing?
We think of marketing as the ads we see on TV, the promotional emails we get from companies, the product packaging designed to stand out on store shelves, the statistical data we gather from research. Marketing can be anything that persuades people to buy a product or service.
By definition, marketing is the management process through which goods and services move from concept to the customer. It includes the coordination of four elements called the 4 P’s of marketing: product, price, promotion and place or placement (distribution channels).
Without marketing, it is nearly impossible to make it
Without marketing, it is nearly impossible to make it in today’s fiercely competitive marketplace. Yet, many companies, especially family shops and smaller businesses view marketing as an expense they cannot afford. Unfortunately, by the time they figure out they cannot afford to neglect marketing, they’re going out of business.
Given the many approaches and applications of marketing, is understandable why many businesses have a hard time deciding how to treat their marketing
Marketing: Investment or Expense?
An expense is something you buy whose value depreciates over time, such as cars, computers, copier paper. An investment is an asset that is expected to grow over time and generate profit in the future.
Marketing can be considered either an investment or an expense. It depends on where the money is spent and what it’s doing for the business. Let’s get technical for a moment.
Marketing as an Expense
An expenditure of marketing dollars whose value is consumed at the point of expenditure is considered a marketing expense. When you buy an ad or attend a trade show, the value of that expenditure is consumed by the action funded. While there is some residual value (brand awareness in the case of an ad or leads in the case of a trade show) the core value of the expense is consumed by the activity funded.
- Expense-based marketing strategies, such as paid ads, end when you stop paying for them and offer no future value.
Marketing as an Investment
A marketing expenditure that creates tools that will continue to drive value and impact sales well after the cost to create the tool is spent is considered an investment. Unfortunately, accounting rules don’t allow companies to amortize these expenses over the agreed-to life cycle of the tool, unlike vehicles and buildings. Marketing goes on the expense line in an income statement, which is why so many business owners think of marketing as an expense.
- Marketing investments, such as content marketing, provide value long after their original point of creation.
For information on how to turn your marketing budget from expense to investment, check out this article by Forbes.
What Are Your Intentions?
When you spend money on marketing, what do you expect to get in return? How you answer that question determines whether marketing is an expense or an investment for you.
You probably spend money on marketing hoping for short-term results such as new customers and sales, as well as long-term results such as brand awareness, which can boost sales in the future. If you spend money on marketing to get a future value in return, you’re making an investment. For example, you don’t revamp your website just to make it pretty; you do it in order to attract more visitors and more business. You expect a return on your investment, so it’s not an expense.
Treating marketing as an expense probably won’t kill your business, but it will hinder it from reaching its highest potential.
Bottom Line
In the end, marketing is both an investment and an expense. It depends on how you use it and how you measure your marketing ROI.
If you want your business to go beyond “getting by,” you will have to put money and resources on marketing. The amount you spend will go on your income statement as an expense, but if it helps your business thrive and succeed, it will be money well spent invested.