The hidden efficiency tax you pay on your business growth – The Growth Tax Newsletter #2

Taxes are THE hot topic right now, with the new Chancellor’s first budget hot off the press, and lots of talk about winners and losers as taxes creep upwards.

Taking an optimistic view, the need for investment has been recognised and we know companies across the UK are bullish about their growth prospects. Our report research earlier this year showed an overwhelming sense of confidence across businesses large and small, despite this being at odds with the sluggish growth we have seen across the UK economy in general.

As a business community we’re ‘up for it’ and believe in our talent to drive growth. Growth is however hard won, so understanding what holds us back and taking action is vital if we want to be successful. As we delved into our report findings, we uncovered a series of ‘growth taxes’ that we unknowingly pay, that erode our ability to grow and scale.

growth tax, noun

A hidden cost or inefficiency that slows down a company’s growth rate, reducing its potential to expand and succeed in the market.

The Efficiency Tax

In this newsletter we’re talking about the efficiency tax – the immediate revenue lost through inefficient processes and poorly targeted marketing spend, and the future revenue you lose by constraining spend to immediate ROI and not understanding buyer cycles or lifetime value.

So how does this manifest itself in the day-to-day running of your business? We’re breaking down the warning signs that you’re paying this growth tax, and covering-off the questions you should be asking to reduce or eliminate your tax burden.

The Key Questions 💡

The questions in bold italics are what you should be asking your marketing team.

Tackling process inefficiency

TELL-TALE SIGNS: You experience operational bottlenecks, you struggle to make progress on implementing change, or you’re simply unable to respond as quickly as you’d like.

Always ask the question: ‘Who’s responsible for delivering this?’ Collaboration is generally a positive, but too much collaboration results in a lack of decisiveness and clarity on who’s driving a project forward.

In a smaller business, it’s also highly inefficient. You need the few people you have to be focused on getting the jobs you need doing done, and it’s a fine balance. Ask who really needs to be involved and get their input, but make it clear whose name is against the end delivery, giving them the autonomy to get it done. Too often things fall through the cracks because there’s a lack of clarity around ownership.

Sign-off processes are critical in a marketing team, so bringing structure to deliveries can help short-cut both development time and sign-offs. Do you have design guidelines, a prescribed tone of voice and content pillars that frame what you talk about? The tighter you are on what you’re delivering, the faster you’ll be getting it to market.

This lines up nicely with getting things right first time. In marketing we’re often translating other people’s thinking, bringing together group outputs and simplifying the complex. How often do you see end deliveries that don’t match up to your expectations? A key step in efficient delivery is checking understanding and alignment upfront, not when precious time has been spent developing a new ad, website copy or content piece. Build short summary briefs into your delivery processes and your team to check ‘is this what you’re thinking?’

It’s easy to be a ‘busy fool’ in marketing. We see time and time again clients busy producing great marketing content but who haven’t thought about distribution. They’re posting on social channels and writing articles, but when you look at how many people actually get to see the content, it’s minimal. How many people are seeing the marketing we produce? In most cases more is less – great content distributed well is better than lots of content that never gets seen.

Knowing where to spend and when (budget efficiency)

TELL-TALE SIGNS: You don’t know which growth levers to pull to get more volume, and you’re seeing diminishing returns when you try and spend more in the channels that have been working for you.

Do you know how people buy your product or service? There’s not many businesses we work with that have mapped their ‘customer journey’ and fully understood the jobs that need to be done to get on a customers radar in the first place, let alone convert that interest into an actual sale. Put yourself in your customers shoes and simply ask yourself whether your marketing activity would convert you?

If you understand your customers, you should know the media channels that influence them and what messages resonate. A customer journey is simply a map of how customer decisions get made, what messages impact those decisions, and where you need to show-up in respect of media channels, saying the right thing. How well do you know your customers? In our recent report the research showed this was an area where companies were most unsure.

Are you over reliant on a single marketing channel? There’s different jobs to be done in different channels, but all too often we see companies overly focused on one channel. When they spend more on that channel, ROI takes a downturn as they’re already maxing-out on volume, so efficiency drops. Data has proven time and again that a multi-channel approach generates higher response rates, boosts retention and repeat purchase, and increases campaign ROI. A multi-channel approach benefits you by having more levers to pull and optimise.

Many businesses have seasonal swings in revenue. We work with clients to understand seasonality, using historic data to forecast and optimise marketing investment to align with volume flows. It’s a simple exercise to align targets to seasonality and plan your marketing activity accordingly. Have you got visibility of the seasonal variance of your business? You need to know the best time to dial up and down your marketing investment so you get maximum efficiency from it.

The constraints of proving an immediate ROI

TELL-TALE SIGNS: You’re seeing marketing ROI fall as the business grows, with marketing activity taking longer than expected to drive revenue. You’re focused on bringing in new sales, but spend less energy on building brand advocacy and customer engagement.

Does your target audience know who you are? In psychology the Mere Exposure Effect has proven that people have a preference for things that are simply familiar. This isn’t a quick win. It can take months of consistent exposure for a brand to become ‘familiar’, and your marketing investment won’t get instant payback, but you will capture more market share in the long-term and see acquisition costs reduce as your brand builds familiarity (it’s an easier sell). Take a leap of faith and invest in driving brand awareness. Give yourself confidence it’s working by tracking the right lead indicators.

You also need to understand your buying cycle – how long does it take a prospective customer to buy? Particularly in the B2B space, the buying cycle can take multiple years, with only 5% of your target audience ‘in market’ to buy at any point in time. Expectation on returns need to be realistic – if you’re filling the top of your sales funnel, depending on buyer cycles it can take longer than an ‘in-year return’ to reap the rewards. Know your payback period and nurture engagement accordingly, measuring success through an engagement lens that leads to a steady flow of quality leads as engagement builds.

Is your marketing building advocacy with existing customers? There’s stats aplenty that back-up why you need to be investing beyond new sales; companies that build emotional connections outperform sales growth of their competitors by up to 85% (Gallup); loyal customers are 5x more likely to purchase again and 4x more likely to refer a friend (Forbes); and a 5% increase in retention can increase company profitability by 25% to 95% (Bain & Co study). New customer acquisition is the most inefficient way to build a business!

Taking a lifetime view of customer profitability can significantly change the way you approach your marketing investment. Take a recent example of one of our clients. Their business is low margin, but high repeat sale. Taking an ‘in-year’ view of customer profit meant there was limited ways of bringing a customer through the door profitably, curtailing our ability to scale. Taking a 4 year view and repeat business into account, a customer with little upfront profit is the fuel for long term profitability, unlocking a strong case to spend more short-term to grow a profitable business. You could be paying a significant short-term efficiency Growth Tax by not taking a longer-term view.

We’ve covered lots of ground and that’s only with our first growth tax uncovered. If you ask the right questions, there’s opportunities all around to reduce unnecessary ‘taxes’ and give your business growth an incremental boost. Lots of small wins can make a big difference.

Next month we’ll be unpicking Differentiation Tax. Sign-up to the series to make sure you get the next instalment and if you like what you read, share with your colleagues.

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