“I can’t stop my advertising because I signed a contract – and besides my newspaper ad rep is working hard to make a living for his growing family – and his wife is pregnant again.”  Words of truth spoken by a honest business owner in response to my necessary, yet unwanted advice. You know the kind of advice that goes down like ‘Buckley’s Cough Mixture’.  

Recall Buckley’s’ powerful slogan, “It tastes awful, but it works”?  It seems great marketing advice can be just as hard to swallow. I believe this is precisely why so few business owners market their businesses well. The truth is just too hard to swallow.   

In this particular case, the business owner was spending money on advertising without any idea if it was  breaking even or profitable. Does this situation sound familiar?  

I cannot understand how anyone in their right mind can spend their hard earned money on advertising and not a bloody cent to measure the results of that advertising. Are you guilty of this marketing sin?  

Results are the only logical reason for advertising in the first place. Why? Because your advertising has only one single purpose – to attract more of your Ideal Brand Customers (IBCs)  to your business.  (You do know who your IBCs are, right?)    

On many occasions I have heard business owners and managers say something like, “We don’t need to advertise – we rely on word of mouth.” For your information, advertising IS word or mouth – amplified. It makes sense then to encourage positive word of mouth about your business as long as it pays for itself.  Good advertising, at a minimum, should be a break-even proposition.  

With this in mind, I now share with you the first step of my proven method for measuring advertising results and determining which advertising medium works best for you.  

For explanation purposes, you have received several different proposals, packages and rate cards from various forms of media who communicate directly with your Ideal Brand Customers(IBCs). In order to make the best decision, it will be necessary for you to compare all the proposals on an ‘apples for apples’ basis.  

Ultimately, you want to know how many potential customers you must attract in order to convert enough of them to actual paying customers.  Remember, the number of actual customers must be sufficient to generate enough sales to cover the cost of advertising and still leave a profit.  Here’s how:  

1.  Determine your gross profit per sale of the advertised item or service  (Note: You can also determine your gross profit per Average Transaction Value (ATV) if you wish to apply the process to an entire advertising campaign.)

 2.  Determine the number of sales required for break-even by dividing the cost of the ad by the gross profit per sale.  This number is called “break-even sales”.

3.  Determine your “Sale Conversion Ratio”.  This requires you to divide the total number of customer sales in a period by the total of all enquiries made in that same period. 

 4.  Determine the number of potential customers required to generate enough break-even sales.  This is accomplished by converting your sales conversion ratio to a fraction, flipping it upside down and multiplying by the break-even sales number in step number 2.  For example:           

Gross profit per sale = $50.00

Proposed ad cost =   $1000.00

Break-even sales =   $1000.00/$50 = 20 new sales

Sales Conversion ratio =  25% = 1 out of 4 people buy

Potential enquiries = 4/1 x break-even sales = 4 x 20 = 80 

When you have completed this exercise, you will be able to quickly review various advertising proposals by simply plugging in the proposed “cost of the ad” in step 2 and comparing the quantity of potential customers needed and actual customers needed to break even.

Are you starting to understand how this can help you choose the right advertising medium?  The reality is that all advertising mediums work.  There is no such thing as advertising that doesn’t work.  As long as it pays for itself, and at a minimum – breaks even, it’s the right one for you.  If you now consider the Lifetime Net Value (LNV) of your IBCs you will quickly see the key to successful advertising is to break even on the front end and make it over the long term, on the back end.   Any questions?