Tweet

The secret to determining if your advertising is profitable

Guest post by: Peter Geisheker

Article Overview: As a marketing consultant and owner of a marketing firm, a big mistake I see businesses make is they do not take into consideration the value of repeat sales when they review if their advertising is profitable. Here is how to determining if your advertising is profitable...

The secret to determining if your advertising is profitable

As a marketing consultant and owner of a marketing firm, a big mistake I see businesses make is they do not take into consideration the value of repeat sales when they review if their advertising is profitable.

When determining if your advertising is profitable, you need to look at advertising as a long-term investment, just like buying stocks, real estate, or mutual funds. When evaluating your advertising you need to take into consideration repeat sales from each new customer your advertising produces. Nearly all businesses earn the majority of their sales and profits on repeat sales, NOT first time sales. Understanding this concept is one of the secrets to building a successful business.

For example, let’s say you run a small quarter page ad in your local shopper coupon magazine. This small ad costs you $300. From that single ad you attract three new customers who each buy $50 worth of your merchandise. From that information you would think that you had a loss of $100 on that ad because you paid $300 for it but you only generated $150 in sales. But let’s look at the long-term effect of those three new customers.

Let’s say that each of those three new customers purchases an additional $250 of merchandise from you over the next 11-months. When you take that into consideration, your $300 ad has now generated $900 in sales. And, what if each of those three customers purchases an additional $300 of merchandise from you the following year? Now, your original $300 ad has generated $1,800 in sales over a 24-month period. To put that into perspective, if you bought $300 worth of mutual funds and in 2-years your $300 investment was worth $1,800, you would be jumping for joy! That is why you need to view the profitability of your advertising on a long-term scale, not on a short-term 1-2 month scale. Advertising is an investment to generate long-term customers and repeat sales. Your focus as a business owner must always be on generating faithful long-term customers, NOT one-time sales.

Let’s broaden the picture even more. Let’s say one of your three new customers loved your merchandise so much that she told two of her friends about you, and her two friends each becomes a long-term customer of your business. And, what if those two friends each buys a few hundred dollars worth of merchandise from you over the next couple of years? Do you now see the tremendous long-term value of that $300 ad you placed?

Now that you have a better understanding of advertising as an investment, it is vitally important that you track the source of every new customer (i.e., did they find you in the yellow pages, direct mail, radio, Internet, etc.). Whenever you talk to a new customer you must ask the customer, “How did you hear about us?” Then, you need to track the source of that customer in a spreadsheet or a CRM system and track how many sales that customer makes over time. This is the only way you can truly determine if an advertising strategy is working. Yes, this takes time but it is worth it. And, a good CRM software application can make this tracking very easy.

In summary, before you throw in the towel on your advertising strategies because they are not immediately generating a profit, you must first understand that value of a new customer over time. Stop looking at advertising as a short term expense and start viewing advertising as what it really is, a long-term investment to the success of your business.

Related Articles
  How to Start a Niche Market Advertising Network and Build a Valuable Asset
  Is Your Internet Marketing Business Profitable?
  Home Base Business - The Secret To Successfully Starting A Profitable Business
  Local Small Business Advertising Ideas: Where To Get Them
  4 Top Secrets To Successfully Starting A Home Business

Article Tags: big mistake, business owner, buying stocks, coupon magazine, long term investment, marketing consultant, marketing firm, mutual funds, perspective, profitability, profits, real estate, repeat sales, small ad, successful business, term 1, term customers, time sales



Related Forum Posts
Re: How Much Of Ourselves Should We Give Away...? - what a great topic david start here, it reminds me of a movie i watched resently called KUNFU PANDA. The movie is all about keeping secret. there were two secret kept: the secret of dragon scroll and secret of cooking, later the secret was revealed which was no secret kept. the reason am relating this movie with the topic is that, you can give out 90% for free and hold on to 10% secret which will make you have more customer and traffic. I know some marketers both the internet and offline that will give you 100% product for free but whenever they want to sell to you the little one you will be glad to respond because of their gesture. What I would like to say is that giving out most of the product is a great marketing strategy to win more buyers to your future products.
Should You Get a Patent? - Some things to think about: - Is there already a patent that exists for the idea? - Will your invention be profitable? - What are alternatives to obtaining a patent? The main disadvantages are that you make publicly available your secret and you have to be prepared to defend your patent if someone infringes on it.
Re: Franchise 'due diligence' checklist - As a simple bit of advice - approach your franchise search with a clear mindset. On occasion I hear from someone interested in investing in a franchise, and they are simply "so" determined to own/purchase an exact concept - tunnel vision at its worst in terms of investing. There are actually quite a few determining factors outside of just capital, that might help someone differentiate one opportunity from another. I would have to include, just "lifestyle" as being a significant determining factor. Do you like to travel? Are you even willing to travel at all? Do you want to work out of your house? In front of a computer? etc.
looking for entrepreneur to launch counseling/training biz - I am looking for an entrepreneur who would be interested in taking part in launching online (and offline) counseling and training using my concept based on modern psychology, NLP, low of attraction, etc. I know how to build a profitable business, create a brand and make it popular through advertising, viral and Internet marketing. Even though it is not a web start-up, this type of business can be very profitable and there is a niche which is not yet saturated at this moment. The business model doesn’t require significant funding to get the ball rolling. The concept itself is cool and interesting – I discussed it with many business and regular people and got a very positive feedback. I have IT/financial background and looking for someone who either have psychological background or an entrepreneur who knows how to start and develop a new business from scratch. I’ll be glad to share more details upon request.
Re: Promote Websites You Don't Own! - For most new small businesses jumping into online marketing for the first time I would steer clear of PPC advertising. For a while at least. Without a decent understanding of how search works and the whole PPC thing, including quality score, split testing of ad copy and landing pages, negative keywords, etc., you burn through your money pretty quick while trying to just learn and often end up with a deeply negative return on investment. Instead I would maybe spend that part of the budget on doing more of some of the other things you mentioned. Maybe buy another directory link or two. Another press release. More local offline advertising. Save the PPC for when the budget is not quite so tight and those other marketing efforts are already bringing in business. You can then better afford the learning curve costs and time required to get it right, and most importantly get it profitable.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

TRADE SHOW FOLLOW-UP: HOW MUCH IS TOO MUCH?

Sales Courage and Resilience

Business Coach Explains To You How To Add Value

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.