Do You Know How Valuable Your Customers Are?

Simple Marketing, pt iv

Why is it important to know this figure in your marketing plan?  Because the value of a customer give you your break-even cost for an ad campaign based on how many clients your ad will bring in.

Card_ValueThe research you’ve done so far provides your ideal client’s value.  Now you can start to test market your ads with an eye on calculating the biggest bang for your advertising buck.  Once you figure that, you’ll use that medium exclusively.

I see you shaking your head.  You’re thinking you want to be in different media to get the widest exposure.

But why care how much exposure you get as long as prospective clients are beating down your doors even when you’re running a single advertisement?

Eventually you’ll either max out your capacity or have so many clients that you’ll get exposure by word of mouth.  More likely, your ad will stop pulling and you’ll change it.

Most businesspeople think the goal of advertising is to increase visibility, that it’s critical to have ads in many places at once so eventually everybody will recognize their brand.

But with a small ad budget, that’s unnecessarily complicated and spreads your resources too thin. The path of shotgun advertising leads to high marketing expense, inconsistent placement, failed tracking, and poor results.  Don’t worry about how many people see your ad or how many shop your store as a result.  Focus only on how much income the ad pulls.  Exposure does not necessary lead to sales.

What good does an expensive advertisement do for you if it brings in the wrong kind of customers?  Or if it has people thinking about your offering but encourages nobody to buy?

Let the large companies worry about advanced branding with a variety of media.  You want to concentrate on growing your business profitably.  Concentrate on getting your message to the right customers through a single ad source.  Ensure the cash register rings each time you run your ad.  Then refine your message over time so your advertising become ultra-effective.

Calculating Advertising Effectiveness

In a previous column, we calculated your greatest segment value, the amount of annual profit a top client adds.  Now using that set of customers find the average profit from that group.  This will tell you the most you can spend on your test advertisement.  Pick a medium that has been – or if you’re new at this – that you feel will be effective for your offering.

You want to decide how many new best clients a single ad run will bring in?  If you’ve been advertising, you have prior data that you can use for calculations.  If not, you’ll have to estimate.  You’ll refine this figure over time with live data so it isn’t critical if your guess is off.

To find your absolute maximum cost for this advertisement, multiply the average profit brought in by your ideal client by the number of new clients you expect your ad to bring in.  For example, assume your target client segment spends $5000 with you in a year and that results in $500 profit after expenses and taxes.  Because you conducted personal research, for instance, you discovered what your best clients read.  So you believe running an ad in a particular specialty magazine will result in a single best customer for each run.

According to this rule, the most you should spend on that ad campaign without losing money is $500.  If you haven’t been running advertising and don’t have a stream of data, you might want to figure on less per customer to offer a margin of error.  Realize the first few times you run a new ad you may not get any more income!

Test run the ad knowing you may not see results for a while.  Spend only enough that you can afford to lose without being upset if you realize poor results.  Good marketing is a calculated investment, but it doesn’t need to be a risky gamble.  Be aware that every time you test a new ad campaign you risk throwing money away.  But you won’t do this long-term.  If you systematically track results, you’ll only risk until you discover a mix that works.  Then you’ll continually tweak it until you hone it so it becomes very effective for you.  That’s the payoff because then you can run the ad anytime you wish and each time the cash register should ring.

So far in your marketing plan you’ve answered the four questions: you’ve determined your best client type, you know where to find them, how much they add to the bottom line, and now you know how much you can reasonably expect to afford on a single ad run.  Next week we’ll continue to explore developing an effective ad campaign.  We’ll discuss how to test your ad effectively, and how to tweak it to realize maximum effectiveness.  Later we’ll discuss how you can word it to maximize retention by enabling screening on your advertising.

In future posts I’ll be offering some more creative sales techniques.  And I’ll also be sharing ingenious sales management.  You’ll be able to hand the column to your sales manager and watch company sales and morale soar.  And we’ll talk more about how to lead your customers, key managers, and subordinate employees.

If you find the content valuable and you haven’t already done so, I invite you to subscribe by entering your email in the box at the top right of the site.  We’ll deliver the blog right to your inbox as soon as we publish each column.  And soon I’ll be offering audio recordings of the best articles.

Thank you all for your patience as I address your comments and answer your questions as quickly as I can.  Please continue to leave comments and tell me what areas of business you want me to cover.  Until then,

profitable business All!

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