Concerned with Advertisement Costs?

John came to me asking “How can I keep advertisement costs down?”

Most small business owners are focusing on the wrong measurements for the cost of advertising. Because of that focus, their attempt to keep their costs down it’s actually costing them really big bucks. Let’s refocus on the RIGHT things that will actually MAKE you a lot of money.

Here’s the key:

  • It isn’t the UP front cost of marketing that matters.
  • It’s the cost to acquire a customer that matters.

Get that straight right now! It’ll save you a LOT of money, and it’ll generate a LOT of money for you once you get it right.

Marketing Formula

Let’s take a look at “the marketing formula.” Marketing works this way.

  • Number of people who see your marketing
  • times
  • Conversion rate of marketing
  • equals
  • Number of leads, calls, signups, that you get.

So, if you get your marketing out to 1,000 people a month, and 5% of them are so compelled by your marketing to do what you ask them to do (might be call you, it might be signup on your website, or whatever), then you’ll have 50 calls that month.

And, at that point you’ll get a chance to “make a sale.” So if 1/2 of them buy. Now you have 25 new customers.

Cost to Acquire a Customer

With that scenario, let’s look at “what it costs to acquire a customer.”

Let’s assume that you spend $1 on every marketing piece you send out (could be a letter, could be a pay per click driving traffic to your website, or any other form of marketing).

How many letters do you have to send out before you get one customer? Well, we know that your sales success rate is 50%, so it would take 2 leads to get a customer. And, with a 5% marketing response rate we’d have to send out 40 letters to get 2 leads.

So, at $1 per letter, it costs us $40 to acquire one customer.

As long as you continue sending your marketing while saying the same thing the same way to the same general market you’ll continue to get approximately one new customer for every 40 letters, or $40.

If you are selling something that generates a few hundred dollars to a few thousand dollars in profit margin your next question should be “how many customers do I want to buy each and every month?”

In other words you can buy as many customers as you want.

If you want 50 customers you’ll buy 50 customers at $2,000, and if they generate thousands of dollars then $2,000 in and over $50,000 out. Works for me.

If your profit margin is less than $40 your next step IS NOT to say “that didn’t work, I’ll never do that again.” Your next step is to fix your marketing. You aren’t saying the right things to the right people, and it’s possible you may need to find a less expensive way to get your marketing out there. But YOU MUST understand that the marketing response rate has a far greater impact on how much it costs you to acquire a customer than just the up front cost of your marketing alone.

At this point, you MUST redesign your marketing to get down to the appropriate cost to acquire a client.

What’s Your Marketing Response Rate? Is it Less Than 1%? Less than 0.1%?

Let’s go back and run a different set of numbers that is much more likely for most small businesses. I’ve discovered, after working with hundreds to thousands of small business owners that most actually get a marketing response rate less than 0.1%. In other words they have to send out 1,000 letters to get even one reply.

How many letters do you send before getting your first reply?

Marketing Is Not Black Magic

Marketing is much more consistant than you might imagine. Say the same thing to the same market and the results will be consistent. You just need to find what to say to make it consistently profitable instead of consistently money losing.

Most small business owners don’t really know what their marketing response rate is. But, if you say what you say to the same market then whatever response rate you’ve been getting is likely very close to what you will continue getting over and over.

So, if you get 1 reply for every 1,000 letters — In our scenario above, it will mean you have to send out 2,000 letters to get your 2 leads that will result in 1 sale, and your cost to acquire a customer is $2,000.

And that leads most small business owners to make the WRONG decision. Most look at that and say “I’ll never do that again” and then they start looking for “cheap marketing” by looking for something that doesn’t cost them anything up front. However, even if their marketing is zero cost, the response rate will be the same as before. Which means that if they don’t get 2,000 of them out there they still won’t have a customer.

Some Choose Networking as a Cheap Way to Market–Don’t Lose Site of “the Cost to Acquire a Customer”

Many small business owners opt for “networking”. So, let’s run the marketing formula. You’ll still need to get your marketing out in front of 2,000 people to get your first customer. You will have to meet 2,000 people one on one in networking event to make this work. And that’s another place for small business owners to lose site. Most will not even realize that they will have to meet 2,000 people to make this work, so they will casually drift from networking event to networking event meeting maybe 5 to 10 people a week or less . . . not the 2,000 they will need to get even one customer.

Now, don’t let this distract you from YOUR problem. If you do better than this fine. But apply the formula so that you know what you MUST be doing to succeed.

If you consider your time valuable, and you may spend many hours networking to meet with 2,000 people it’s likely that your “cheap” marketing is costing you an arm and a leg and probably your business.

In this your advertisement costs are still running up there. Free is no longer free. The real focus must be on “what it costs to acquire a customer” not on your upfront advertisment costs.

Get my point? Cheap frequently isn’t cheap when the only thing you are looking at is the up front cost of marketing and advertising.

To get your cost of marketing, your cost of advertising, to work for you thatmeans that you have to develop a marketing message that causes your target market to literally jump into your shopping cart.

Would you like to have 5% or more jump into your shopping cart?

Check out “30 Seconds to Prospects CHASING You” to develop YOUR powerful, compelling message to get them jumping into your shopping cart.

How fast do they jump in now?

Would you like to have them jumping in faster?

Try join us in the $100K Business Toolkit Club to grow your business another $100K in the next 3 to 6 months.cart. We’ll help you develop your marketing message to have them jumping into your shopping cart, and you’ll get your toughest business questions answered. It’s getting coached less than what you’d spend on a new book, but it’s personal to you. Someone to hand hold you through the toughest parts of your business building.

Alan Boyer

The $100K Small Business Coach.

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