We have all heard the old adage that half of all advertising dollars are wasted; the problem lies in figuring out which half.
The numbers become even more interesting (or alarming) when one examines the typical response rates for conventional (and unconventional) media.
Most direct marketers are happy to achieve a response rate of 1 percent to 2 percent -- or 2 percent to 4 percent if they include a telemarketing component. That means the recipients discard 98 percent to 99 percent of their materials without a second thought. The results for brand marketing or advertising bring even more frustration to business owners, mainly because consumers' perceptions about brands are so difficult to quantify.
Yet, every business, especially a startup, needs marketing to survive and thrive. So what can an entrepreneur do?
First, focus on generating leads over building a brand. Leads bring customers to your door. Then their experience of your product or service, as well as the reputation you develop for customer service and delivery, will build your brand.
Related: Five Signs You Need a Marketing Makeover
Don't dispense with creating marketing materials that look good. But you do need to create materials that properly sell your product or service and allow you to track responses.
Remember: A great ad for your business probably won't win a Gold Lion at Cannes. But it may pay your way for a first-class ticket there.
Second, understand that most marketing and advertising campaigns are pure failure. They don't work for a variety of reasons.
So the difference between response-driven marketing and branding-oriented marketing is that you can track, test and measure the first type and adjust it until it is right for your business.
Why is it so important to track, test, and measure? You need to establish baseline performance numbers for your company in your particular category of business and then to try to improve upon them.
This is very difficult to do. Even professional marketers find it hard to "move the needle" when it comes to measuring customer response.
If you focus, though, on two metrics that most others do not, you can work your marketing and advertising in new and more profitable ways.
You'll first want to figure out a lifetime value for every new customer. That is, how much the average customer will spend at your company over the course of the business relationship.
Next, calculate the customer acquisition cost: the amount you spend to acquire a new client for your business. You never want to pay more for a new customer than you absolutely must; and you are striving for this person to eventually spend more than the initial acquisition cost so that your marketing is profitable.
For lifetime value, simply come up with a guesstimate for the value of a typical sale to a customer (say, $200). Multiply it by the number of times annually he or she will buy products (say, three times) and multiply that by the number of years the typical customer does business with you (say, three years).
The result (in the above example, $200 X 3 X 3 = $1,800) gives you an indication of the importance of setting up a repeat-business program that not only raises the amount that a person buys and the number of shopping occasions, but also extends the length of time he or she remains a customer.
For the acquisition cost, if you spend $1,000 on an ad and pull 100 people in the door, you are paying $10 for each lead. But if only 10 people make purchases, you are shelling out $100 for each sale (10 X $10=$100).
Related: Small Marketing Changes With a Big Impact
The above example demonstrates the value of boosting the rate of converting leads into actual sales, as well as targeting a level of return (at least $100) so that your campaign breaks even -- or brings in more so that your efforts truly profit.
Examining the figures makes it apparent that you can afford a "loss leader" campaign -- offering a product or service that nets a return of less than $100 -- only if you can capture that customer for the long term and pick up repeat business over time.
What's key is to use actual numbers from your own company's experience and business category to help you make better decisions about spending your precious marketing resources.
Here are five tips to help you focus your thinking to generate a better response from your marketing and more return on your investment:
- Define marketing differently. One of the simplest interpretations is to consider it communication and education. You are communicating to customers or prospects on a regular basis with actionable, sales-oriented information about your business, product, or service.
- Adopt the mindset that you're not advertising; you're buying customers. Consider your efforts a way to purchase for your business the best customers possible. That means you always market and advertise with the expectation of realizing a return in the form of new leads. If this is not your result, end your campaign and move on. But if the new leads materialize and customers purchase your products, then you have the basis for a winning campaign.
- Realize nothing has really happened until a sale occurs. You might have a great logo, a slick business card, exceptional letterhead, a killer website, and all the other props of a company, but you don't have a real business until you net customers and sales. So orient everything you do to realizing leads, sales, and repeat business -- especially the latter, which is where your profits and growth will lie over time.
- Rely on the formula: "Target, Offer, and Copy." Define your ideal, perfect customer. Then target that customer again and again with benefits-oriented offers ("what's in it for them") and marketing work that supports your sales message. Then measure the results. Profiling your ideal customer (through demographics and psychographics) and discovering the media to best target that client will keep your focus laser-like. This process alone will help you eliminate most media or at least limit your choices. Or if you plan to purchase radio or TV ads, you will be able to weed out the stations or programs inappropriate for your target.
- Test any new marketing medium first. I have seen some startups set aside $50,000 or $100,000 for an ad budget and then fork it all out for a single media campaign. It's better to take $5,000 or $10,000 and experiment first. That way, you will have enough resources left in a contingency fund to try something else if the first effort does not work. Plus, your company will be able to survive an ineffective campaign.
Related: How to Make Your Email Newsletter a Must-Read for Your Customers
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Comments:
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Thanks for your advice to “Test any new marketing medium first.” I waded into the waters of Facebook and LinkedIn ads for my design microagency, Pi
Thanks for your advice to “Test any new marketing medium first.” I waded into the waters of Facebook and LinkedIn ads for my design microagency, PixInk. Marketing metrics allowed me to determine which message garnered the best response rate. The next challenge is to convert likes into clients.
Awesome post. Thanks for sharing. Specifically appreciate the "realize nothing has really happened until sales occur". We wrote a post on the future of measurement today - interested in your feedback/thoughs -http://wp.me/p1zh4W-mt
Important article for any business owner who is actively marketing on a regular basis. (Hopefully that is 100% of you, but sadly, probably more like 15%.) Here are a couple of ideas for tracking offline advertising: 1. If driving them to a physical location, have them "clip a coupon" for a bonus gift when they purchase (or a discount). 2. If driving them to a telephone order, have them "mention this ad" for free shipping or a discount at checkout. 3. If driving them to call for information (such as a free catalog, DVD, etc) have them "call and ask for Jane" where the name is a reference code for the particular ad source in question. Simply having a sheet of paper by the phone (or behind the counter) and ticking off the right column when the phone rings or someone drops by will at least tell you what ad sources are generating traffic. You can even circle the ones that convert to make it easy to tally both leads generated and conversion rate. Hope that helps some of the offliners! Paul Keetch Co-Author, # Amazon Besteller Make My Marketing Work: How to Win Customers & Make More Money
Hi Brad, I agree with you 100%. The thing I run into with my business is that so many business owners know they should track, but they have no idea where to start; what numbers and data to pull together in order to be able to see what's effective and what's not. They get so overwhelmed with the whole task at hand, that they simply keep blindly handing over money for marketing simply because they know they have to market. When you see this, it's almost a sickening feeling because you know there are such simple ways to track that are not time-consuming and would really increase revenues for that company. Just think, if you knew which advertising worked and which did not, you could use the money for useless marketing and put it towards marketing that works, thereby increasing for two reason: 1) you're no longer throwing money into the endless pit, 2) you're putting money into a source that is proving to increase gross revenues. When you're tracking marketing effectiveness, once you get going and have created somewhat of a history you'll start to see that the effectiveness of your sales reps also can play a big part in your marketing effectiveness. We have seen through metrics that some sales reps can sell leads from certain marketing while others cannot; on the other hand, the other reps may be stronger closers from other marketing sources. So, again, I agree with you, Brad. If you're going to spend money on marketing and advertising, you certainly have to have a tracking system in place. Beginning with tracking sales and marketing, your system must be one that will track the numbers that affect your bottom line. Susan Raisanen By The Numbers www.bythenumbersroofing.com
I think this is a great article for small business owners and entrepreneurs in an area that gets often overlooked. The only thing that I would add, it the importance of reviewing and revisiting your marketing strategy if you are not getting or stop getting the results you expected. Doing the same thing over and over again and expecting a different result is insane and a waste of time and energy. It is surprising how many entrepreneurs get caught in this trap. -Lisa www.twodogsandastartup.com
Good article, this is an area that most all small businesses could do better. I know with Cruise & Associates we need to work harder on tracking our marketing results. Robert F. Cruise, EA www.cruise-associates.com
Brad, Great article. This is an area we talk to our clients about all the time. The only way to effectively increase marketing ROI and lower customer cost per acquisition is to track and record all marketing activities from initial interaction to final close. At minimum, this requires the use of web analytics — to track traffic sources, website activity and online conversions; call tracking — to associate offline conversions (phone calls) with a specific marketing initiative; and a CRM — to close the loop on marketing efforts and track all lead through to sales conversion. Armed with the data provided by these tools, you can holistically analyze and evolve a marketing campaign to maximize performance.
Steven, you are absolutely correct about Google Analytics, AdWords, etc. Unfortunately these are only helpful in a businesses online marketing efforts, of course. At my company, Callcap, we are devoted and passionate about measuring the effectiveness of marketing online or offline. This article puts a great emphasis on the importance of marketing management, and the dangers you could face without it. The concept of tracking your marketing is easy to overlook but once you see the results and understand the effect (good or bad) your advertising had on your company, you will ask yourself how you survived without it. Great article!
Good article, Brad. I would add one more thing to point #4: make sure that you have a distinct call to action that can be measured in every campaign. This can take the form of a special discount, coupon, phone call to a unique toll-free number, download of a free article on your website, Likes on Facebook, etc. Make sure it is very clear to the audience what you want them to do, give them an easy way to do it and then measure the response.
Google Analytics, Website Optimizer and AdWords are great tools to help track your marketing efforts. You should also always focus on why your pages of a website exist? To get more customers of course.
a 98% failure rate? eeek. also, I love the "buying customers" analogy. still, though... as a startup, when money is tight, wrapping your ahead around something as intangible as marketing can be very tough. -www.awkwardengineer.com