Marketing and Risk

I talked a little yesterday about marketing as an investment in your business, so today I want to spend a little more time on what that means.

Understanding Investing

The act of investing is simply putting money towards something (the purchase of assets or retirement, for instance) with the expectation of receiving profits on that amount later. You might remodel your kitchen with the expectation that it will bring a higher price when you sell your house, or you might put money in an interest bearing account like an IRA or 401(k) so that you have a comfortable nest egg to live off of in your golden years.

Understanding Risk

Now, the types of things you choose to invest in will depend on your own comfort level with risk. Risk is the possibility of incurring loss – so if you are risk adverse, you put money in a savings account, treasury bonds/bills, or cds and make your 0.5-3% return on your money each year. That’s ok, but the cost of inflation will probably wipe out most gains you make. Still, you have the government’s backing that if your bank goes under, you will still get your money.

If you are more risk tolerant and want to grow your investment to outpace the inflation rate, you might put your money in the stock market. Here, of course, there are several options – you might by an overall market index fund or you might try to beat the market with a collection of individual stocks or mutual funds. The higher the risk, the more money you may make (or lose).

Investing In Your Business

Having said that, let’s turn to how this applies to an investment in your business. When you invest your money in an asset like real estate, for instance, you’re taking on the risk that building might burn down or be destroyed through some other natural disaster – that something might happen to the building itself so that you can no longer use it or sell it in the future. To reduce the risk that something unforseen might happen to this building, you might buy an insurance policy against fire or some other natural disaster. That way, if something does happen to your building, you are guaranteed at least some money in return. Of course, this doesn’t happen for free – you must pay a monthly premium to the insurance company for this policy. If nothing happens to your building, the insurance company keeps the money. You’re buying peace of mind here – that you’re covered should anything happen – and this alleviates a good portion of the risk you’ve taken on in owning a building.

Marketing As A Business Investment

How does all this apply to marketing? Well, as I’ve mentioned, marketing is an investment in your business. You must put money in to get a higher return later on. With marketing, you are investing in a system to attract prospects and retain clients, so in essence, you are investing in your belief that you offer a valuable service that others may need. If you are right in this belief – that there is a need for your services in the market, that you can identify those people who do have a need for your services, that they are willing to pay your price for your service, and that you can cost effectively acquire them so that you make a profit – then you have a sound business idea. If you are wrong, then you will burn through money trying to convince people to buy something they don’t want or need. The risk is that your underlying assumptions are wrong.

This is why taking the time to put together a business plan is so essential to your success. When you start writing the plan, you are forced to look at the overall market – from how many people are in it to the home turnover rate to how many competitors you have currently serving that area. If your initial market is small or that people in your particular target don’t buy/sell their home very often or that you have 10 other Realtors who are actively marketing in the area, you will have problems making a profit. And you will throw away lots of money trying to reach prospects that don’t have a need for your service. On the other hand, if you can pick a relatively good sized niche who on average buy/sell their homes pretty often and no one else is serving that market, you’ll do very well (provided you are good at what you do and are easy to work with.)

Again, I want to STRESS that if your underlying assumptions are wrong, you will have problems growing your business into a profitable venture. If you are not good at what you do, you will have problems. And if you are grumpy or arrogant all the time and give off the impression that everyone is wasting your time, you will have problems.

Role of Marketing Communications

All of these factors play a huge role in your return on your marketing investment, and none have anything to do with your website, your brochures, or your other marketing tactics. Marketing communications are simply that – ways to communicate your differentiating principle to prospects. That’s why you don’t have a “buy now” button on your website where people can enter their credit card number and magically buy a house from you. That’s why you don’t send out an order form along with your catalog of homes and expect to get back 50 checks for 50 new homes.

Instead, you meet the prospect in person. You develop rapport. You take them around to different homes. You educate them on what they need to do to be successful in their buying/selling process. You listen to their needs and concerns, and assure them that everything will be ok. You help them calm down when they are really stressed out about something. And you share in their happiness when they finally move into their new home. That’s why your best clients come from referrals – you don’t have to initially prove that you can do the job and are great to work with. The person who referred you already did the hard part.

Marketing takes into account ALL of these features. Your marketing return on investment depends on all of them. You use postcards, flyers, newsletters and your websites to encourage prospects to call you, but you make the sale in person.

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