When a method of advertising performs well, the natural tendency for an excited business is to pump more money into it. After all, you have seen how effective it is first-hand, so it makes sense to invest in it further. But if you keep doing this, a funny thing eventually happens; the more funds you put in, the worse its relative performance becomes. What happened?
This is the law of diminishing returns in action, and it is something that greatly affects every marketing strategy. If all other factors remain constant, adding more money to a campaign will gradually become less and less rewarding because of saturation. Most of the intended market has already seen your advertisements, and the ones who still have not become customers are the ones least likely to change their minds.
As a result, your conversion rates drop and the cost for every acquisition increases. You will soon reach a point where you are actually losing money every time you increase the budget. Obviously, this is something you want to avoid, as you want every pound you spend on advertising to give the greatest possible return.
Avoiding the Point of Diminishing Returns
Unless you have an unlimited advertising budget, your goal is to allocate the funds in the most efficient and profitable way possible. Of course, the ideal budget is different for every company and industry, but there are several universal guidelines to follow.
1. Have a good mix – The first and most important step is to never rely too heavily on just one or two forms of advertising, as this greatly affects your reach. Your advertising channels should include radio, television, newspapers, magazines, and so on. Try experimenting with everything, since services like route2take.co.uk make it easy to find affordable marketing opportunities.
2. Increase funding gradually – The last thing you want is to do something like quadrupling the print ad budget overnight, as chances are, you will completely shoot past the point of diminishing returns. By slowly increasing it, you can see at what point the returns start dropping off sharply, and stop once it is no longer cost efficient.
3. Keep testing and monitoring – Markets and customers are fickle, which is why your advertising strategy must always be flexible. The ideal allocation usually changes every year, thanks in large part to the Internet and technology. Learn to detect trends and adapt quickly to them, and your budget should remain optimised at all times.
Almost every corporation can stand to improve how they spend their marketing funds, and even minor adjustments can yield a sizable boost in conversions.