How To Tell If An Ad Costs Too Much - Part 3 - Adult B2B Marketing Tip

How To Tell If An Ad Costs Too Much - Part 3

Here's more on finding out if an ad will cost too much:

A couple words of advice when figuring your return on investment for advertising. First, always estimate your numbers conservatively - on the low side. Always figure on getting a lower number of leads than you're hoping for and expecting. Always count on a lower closing ratio than you're used to. If you calculate your numbers using conservative figures, then you'll do fine if your results are actually lower than projections...and in the event that you do as well as you had initially hoped, you'll just make more money than you expected.

Example ROI - Here's a real-life example of a company that promoted seminars where they would sell a service that cost $8,000. When they were just starting to advertise and promote the seminars, the question of how much budget should they allocate came up. They wanted to start filling seminars within about a week after starting advertising, so fax broadcasting (when it was legal) looked to be the best way for them to quickly get the message out about the seminars. Faxing could be done for as little as 7¢ per page in some major metropolitan areas, so they came back and said they thought they would want to send out about 25,000 faxes a week for the 5 weeks they would be doing seminars. When asked how many sales they planned on generating - they said because of a unique financing plan that allowed them to sell their package on a low monthly payment basis, they thought they could sell at least 100 packages in that 5 week time period.

Well, 100 packages is a lot, and they were told that they would have to send out at least 100,000 faxes a week for the 5-week period to get the number of leads required to sell that many packages. One of the owners got out his calculator and did some quick math and realized that he'd have to spend $35,000! 7¢ times 100,000 faxes times 5 weeks! That number - $35,000 - sounded so huge it caught him off guard. His idea was to spend just under 2 grand a week, or a total of less than $9,000. Big difference. That's called "sticker shock."

So what he did was figure out the ROI, according to the steps above. First, he figured out his gross profit per sale. That was about $3,250. Second, he figured out the closing ratio. He thought his would be about 20%. So then, how many sales would he need to break even on a $35,000 advertising expenditure? Well, $35,000 divided by $3,250 gross profit per sale is about 11 sales. Just 11 sales to break even. So if his closing ratio was just 10%, he'd have to generate about 110 leads to break even. 110 leads on 500,000 faxes? Easily attainable. The last thing to do was to figure out how many leads he had to have to reach his goal. His goal was 100 sales, and his closing ratio was 10%. That means he had to generate about 1,000 leads. On 500,000 faxes sent out, that's like a 2/1000 of a percent response. A very doable deal. He'd generate a total gross profit on the deal of $325,000 ...and if you subtract out the $35,000 advertising cost, it was still a healthy gross profit. His attitude toward the $35,000 changed instantly.

See how that works now? Just run through your numbers and you'll know how much money is a lot of money when it comes to advertising.

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