An introduction to compound interest

Anyone familiar with the world of pensions and savings will be familiar with the concept of compound interest. Gains in your investment are reinvested, over and over again, typically on a monthly or yearly basis.

Compound interest, where the gains are continually reinvested each year, results in significant gains over time. The longer you invest, and the more frequent the compounding, the more substantial the long-term effects.

Albert Einstein described compound interest as "the most powerful force in the universe" and Warren Buffet described it as the 8th wonder of the world.

The first rule of compounding: Never interrupt it unnecessarily

Charlie Munger

The problem with (most) marketing activity

In many respects, marketing campaigns are the antithesis to this compounding concept. Campaigns require a significant investment of time, money and resource but are run in isolation, with little reinvestment into ongoing activities.

If we compare the characteristics of compounding interest versus marketing campaigns:

• Strategic Plan – Tactical Initiative

• Long Term Gains – Short-Term Temporary Lift

• Compounds Over Time – No Compounding Effect

• Exponential Growth – Linear Growth

When running a marketing campaign teams see a temporary boost in key metrics but, in most cases, those metrics fall back to where they started once the effects of the campaign have worn off. In spite of this, we see many marketing teams still structured with campaigns at the core of their yearly planning.

Remember, your customer doesn't know anything about your campaign. From the customers perspective there is a flurry of activity from your brand which then promptly disappears. Customers will buy when they are ready to buy, which can be at any time, and often outside of your scheduled campaign.

Invest in flywheel marketing

Extraordinary results do not require extraordinary efforts. Speak with any successful growth team leader and you will quickly discover that success lies in making small, consistent, incremental improvements that get amplified over time in unimaginable ways.

There are no magic bullets or hacks to growth, it is about building systems that compound in order to create flywheel marketing. The best growth marketing teams achieve success by continually improving systems, assets and activities that deliver value over time.

Teams build always-on marketing systems using either technology, or by creating repeatable playbooks or processes.

1. Technology – typically growth teams try to implement and automate as much marketing activity as possible through technology. How can you use technology to drive success at scale?

2. Playbooks – for an activity that cannot be automated, playbooks are designed to ensure there is a documented, repeatable process as we want to always be standing on the shoulders of our successes.

Here are 4 examples of popular always-on marketing systems to help build your marketing flywheel:

1. Content Marketing

A piece of well-researched, well-written content is one of the most widely used examples of a marketing asset that compounds over time. This is because by creating high-ranking guides and other evergreen content the value of backlinks and keyword rankings continues to provide value long after the content was initially created.

HubSpot became one of the fastest growing software companies in the world and grew their organic search traffic to almost 8 million visitors a month through this always-on activity. To this day, content flywheel marketing continues to be their biggest source of traffic growth.

2. Referral Programmes

Referral programmes are another good example of building flywheel marketing by incentivising existing customers to refer others. Once they are in place, referral programmes typically operate in an automated, always-on fashion.

The Dropbox referral program is one of the most famous success stories of referral marketing. Existing customers were incentivised with additional free space in return for inviting their friends. Between 2008 and 2010 Dropbox doubled its customer base every 3 months as a direct result of this referral programme.

3. Email Marketing

Email marketing is still the most effective way to both remind people of your brand and to bring them back to your website. It remains the most widely used method of nurturing visitors into qualified leads.

Intermix is a performance monitoring solution for data teams based out of San Francisco. The company started sending a simple weekly newsletter (SF Data Weekly) which has grown to over 5600 subscribers.

4. Marketing Engineering

In his book Traction, Justin Mares defines marketing engineering as:

“Using engineering time to create useful tools like calculators, widgets, and educational micro-sites to get your company in front of potential customers. These tools then generate leads and expand your customer base.”

There are literally hundreds of examples where companies have used this successfully:

• WPEngine speed testing tool

• HubSpot website analysis tool

• TransferWise savings calculator

Moz provides free tools like Keyword Explorer and Link Explorer to attract potential customers.

Flywheel marketing characteristics

Jim Collins used the flywheel effect as a metaphor to describe the accumulation of effort applied in a consistent direction, identifying this as the secret of going from good to great.

1 Momentum

An object at rest tends to stay at rest, and an object in motion tends to continue in motion.

2 Feedback Loops

The faster the wheel is spinning, the easier it is to add incremental speed.

3 Compounding Return on Effort

Continuous small inputs add up into an impressive output over time.

4 Direction

Sustained effort must be focused in one direction to maintain momentum.

Evolution, Not Revolution

Building always-on flywheel marketing avoids wasted assets from traditional campaign-driven marketing teams.

By investing in always-on assets and programmes, teams can build a foundational machine that creates permanent, predictable, and scalable growth.

Good to great comes about by a cumulative process—step by step, action by action, decision by decision, turn by turn of the flywheel — that adds up to sustained and spectacular results.

Jim Collins, Bestselling Author of Good to Great