CFO-Whispering for Marketers - Episode #1:
What is the opportunity cost of running a sale/promotion?
Promotions cost money. We (marketers) just don't think of them that way because the cost only shows up when we generate revenue (😎).
When we reframe promotions as a cost, the strategic formula changes.
What else could you do with that money?
- You could run more ads
- You could experiment with a new channel or new creative
- You could source and pay new influencers
- You could invest in a new martech tool
Promotions are highly effective at driving short-term sales lift. But we must be critical of the "hidden" costs.
In the scenarios below, a 25% offer drives a 40% lift in customers but a 50% increase in CAC. The short-term incremental ROI on this offer is just 1.14.
Do you think any of the alternative investment areas noted above could yield a better ROI?
Do you think the long-term benefits of the alternative investment areas might be better than a price promotion?
If so, build a case highlighting that business ROI for your CFO.
Of course, this isn't to say all promotions are bad. You may need to move inventory, you may have confidence in your repeat rates or you might need to fight a short-term competitive price battle.
But beware the hidden cost trap and short-term sales boost dopamine hit.