In the first part of this blog I spoke about how tracking your advertising and marketing programs is one of the best investments you can make. I gave the example of how tracking can make your advertising and marketing a measurable scientific process rather than a shot in the dark or, as I said, throwing a dart with your eyes closed and hoping that you hit the bulls-eye. The example was a simple straight forward one (click here if you would like to read it). By tracking, the business person discovered that they were making $4.90 – $5.60 for every dollar they invested. It was a straight forward advertising tracking situation and one that is easy to diagnose. Here I am going to show you how to determine the best move when things are not so obvious….
What would you do if you had the following situation?
You are the same business as in Part 1 but have two advertising and marketing projects and want to figure out how to best spend your money….
PROJECT ONE (same as in Part 1):
Your direct advertising mail project costs $30,000 to mail every other month for a year (or $5,000 per mailing). Once again the project produces a 0.5% return with a close rate of 30% and the average sale is $10,000 with a profit margin of 35%. If we were mailing 5,000 pieces every other month, we would be generating 25 leads every other month. The cost per lead is $200 ($5000/25 leads = $200 per lead) and we would be generating 7-8 new customers who would spend $70-$80,000 and produce $24,500 – $28,000 of profit every other month. Without tracking, we would never know that the investment of $5,000 every other month is producing a return of $4.90-$5.60 for every dollar invested.
You invest in a high-end publication that charges $2,500 per month for a full page in color. It reaches the 50,000 most affluent people in their geographic area. The publication is generating 10 leads per month or 0.02% return. The average sale is $13,500 with the same close rate of 30% but with a 40% profit margin…. this vehicle is producing 3 new clients per month. The cost per lead is $250 ($2,500/10 leads = $250 per lead). On the surface, Project One is the winner because it delivers the most cost-effective leads…. until you drill to the bottom of the data. Project Two does costs more per lead, however each job produces $13,500 in sales. So let’s do the math. This vehicle produces 3 leads every month and produces $40,500 in sales with a 40% profit margin or $16,200 in profit. Project 2 produces $6.48 of profit for every dollar invested.
What do the numbers tell us? In the above example Project Two produces 6 customers and $32,400 of profits. Project One produces 7-8 customers and $24,500 – $28,000 in profits. Most business people would want to choose Project Two as the winner and invest their money there. However, if I was their marketing consultant or advertising coach, I would tell them to continue with both if they could maintain their service and quality levels as they are generating between 490%- 648% returns on investment (ROI), and where can anyone get this type of return legally?
Tracking can even get more complex than this. However, if you track your advertising and marketing spending quantitatively (the number of lead by the cost) and then you look at the numbers qualitatively (how much profit was generated divided by the cost) you are ahead of 99.9% of small businesses. I hope these two blogs have helped peel away some of the mystery of how and why you should track your advertising and marketing investments.
Accelerated Advertising is located in Nanuet, NY and we primarily service Rockland County, Westchester Orange Counties, NYC and the Hudson Valley in NY, Paramus, Bergen County and Northern NJ as well as Stamford, Fairfield County and Southern Connecticut. We also work with firms from around the country via on-line meetings, the internet and of course the telephone. If we can help you, let us know. We’d also love to hear your comments and feedback on the two parts of: How and Why Tracking Your Advertising Is One Of the Best Investments You Can Make Parts 1 and 2…. Thanks & Happy Marketing!