A general contractor's marketing budget is $60,000 annually. If referrals account for 70% of new business but only 15% of marketing spend, what adjustment should be considered?
Correct Answer
D) Increase investment in referral programs and customer relationship management
Since referrals generate 70% of business with only 15% of marketing spend, increasing investment in referral programs and customer relationship management could yield higher returns than other marketing activities.
Why This Is the Correct Answer
Option B is correct because the data reveals a significant inefficiency in marketing allocation. When referrals generate 70% of new business while consuming only 15% of the marketing budget, this indicates an exceptionally high return on investment for referral-related activities. Increasing investment in referral programs and customer relationship management would likely yield much higher returns than the current marketing mix, making this the most logical strategic adjustment.
Why the Other Options Are Wrong
Option A: Eliminate all other marketing activities
Option D is too extreme and risky. Eliminating all other marketing activities could harm business diversification and future growth, as referrals alone may not sustain long-term business development or reach new market segments.
Option B: Maintain current allocation since referrals are already strong
Option A is flawed because maintaining the current allocation ignores a clear opportunity for optimization. While referrals are strong, the low investment relative to their high return suggests the contractor is missing opportunities to amplify this successful channel.
Memory Technique
Remember 'High Return, Low Investment = Increase Investment' - when something works well with little money, give it more money to work even better.
Reference Hint
Business and Finance for Contractors - Chapter on Marketing ROI and Budget Allocation
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