Do Your Ads Make You Money?

This is a very important question, and is usually difficult for business owners and marketing managers to answer. We can answer this question; it just takes a little discipline. There are 3 main factors to answering this question:

1) Knowing Your Acquisition Cost
2) Measuring the Leads Generated from a Campaign
3) Tracking Your Conversion Rate on Those Leads

Knowing Your Acquisition Cost
First, what is your average sale? Really think about the average. Out of 20 sales, what is the average? Next, what is your Average Gross Margin on a sale? What is left after Variable Costs on average? Now that we know our Average Gross Margin, we can determine how many sales we need to break even on a campaign. But wait, there is more… We also need to understand the lifetime value of your customers. So, on average, how many times does a customer buy from you? And, how many years do they come back for? Now you can begin to understand what a new customer is actually worth to you, which means we can understand how many new customers we need from a given campaign.

Measuring the Leads Generated from a Campaign
We touched on this subject last month. There are a variety of ways to measure the leads brought in from an advertisement. You can visit our blog at http://intriguemediacanada.blogspot.com/ if you want to read up on ways to do this.

Tracking Your Conversion Rate
Okay, let’s say that you are spending $2,000 on an ad campaign. Your Average Gross Margin is $200 and Customers, on average, buy from you once a year for 2 years. So, we know that you need 10 new customers to break even in your first year and receive a 100% return in the second year. Let’s pretend we want to break even in the first year. That means we need 10 new customers. If our advertising campaign brings us 20 leads, we know that we need a 50% conversion rate. If we track who comes in from the campaign and who buys, we will see our conversion rate. If it is lower than we need, we can work on improving it.
Understanding these three factors will bring you one step closer to answering the question, “Do Your Ads Make Your Money?”