How marketing compounds like interest
Albert Einstein allegedly said that “the power of compound interest is the most powerful force in the universe.”
Whether he actually said that or not, you can’t deny that compound interest is a powerful force.
To give you some basic definitions (in my own words), interest is basically a return on investment. It’s profit.
Compound interest happens when you take the interest (profit) and reinvest it back into your principal (invested money).
What happens is, not only do you continue earning interest on your initial investment, you also earn interest on the interest you reinvest. Your interest and principal grows, which further increases your returns (profit). Then it gets reinvested again to increase your principal, and so the cycle continues.
With compound interest, the real power comes in the late stages of your investment. For the first few years, your profit is not much greater than it would be if you took it all as profit. But if you leave it in long enough, reinvesting the profit along the way, you end up seeing major growth in the later years. See the chart below as an example.
How this applies to marketing
Marketing works in a similar way. As you build up the layers of your marketing, the results start to build on top of each other, too. Your brand develops, your processes improve, and your results tend to get better overall.
Slowly, your marketing gets easier, cheaper, and more effective. You build a competitive advantage that compounds. Your reputation precedes you. You’re a known player and market leader.
To be clear, this isn’t saying that you should reinvest all your profit back into your marketing (although to you should reinvest some). It simply means your marketing becomes more efficient and effective as you build each layer over time. Each thing builds on the last.
You can get short-term wins in almost any business. Good luck, timing, low competition, or injections of capital can create quick boosts to your performance in the short-term.
But as with most things, any sustainable benefit or advantage is usually seen over the long-term. Each improvement to your marketing contributes to a flywheel effect, where each part enhances the other.
When it comes to marketing, it’s best to play both the short and long-term game. Get your wins quickly if you can, but expect the best results and benefits to come in the long-term if you continue to invest in and build your marketing program one piece at a time.