Marketing - Why Every Business Owner Gets it Wrong
Virtually every business owner in the world makes this mistake. They consider their advertising a business expense, after all, it goes in the expense column on their profit and loss statement.
Understand this, advertising is an investment in your business, and like any investment you need to know what return you are getting, how else can you decide if it is a good investment or not.
Most business owners advertise when their sales are down, or they just run the same add every week, giving no thought to whether it is helping their bottom line or not, before you place your next set of adds consider the example below.
My friend Alex and his wife Judy own a fish and chip shop. They were having financial trouble so I asked if I could help, and this is what happened.
Alex was advertising in two local papers, the adds cost him $400 per week, so I asked him to start testing how effective the adds were. For one week Alex asked every single customer, where they heard about his store.
At the end of the week he found that only 25 people had responded to the newspaper adds. Each of these new customers, had an acquisition cost of $16. ($400 / 25 New Customers)
Then we counted up the amount of all the sales Alex had made in that week, and divided it by the total number of transactions. It worked out that on average, people were spending $8.50 each time they visited his shop.
So Alex was paying $16 for each new customer and they were only spending $8.50, he was making a loss of $7.50 on every new customer that he was getting.
Note: To make your marketing successful, your acquisition cost has to be lower than the average amount a new customer will spend with you.
To help rectify the problem Alex was having, we decided to change his headline, and his offer.
I asked Alex how much he sold a scoop of chips for, he said $1.50, and how much does it cost you, only $0.50c he said.
Alex had a product that every person who was buying fish and chips would want, and it had a very low hard dollar cost. So I told Alex, great, were going to start giving them away.
Give them away, are you nuts, I will have hundreds of people flocking to my shop.
Great, I replied, that's what you are in business for isn't it.
The next week, instead of his usual add, Cromwell Corner Fish & Chips, we used a coupon design that said, Free Scoop of Chips. The result was amazing, at the end of the week we had a total of 332 coupons.
His adds still cost him $400, and he also had to pay for 332 scoops of chips at $0.50c each, a total of $166. His advertising for the week now cost him a total of $566 but each of his new customers only cost him $1.70, and they spent on average $7.00 ($1.50 less because of the free chips).
Alex now knows when he spends $566 on advertising he gets $2324 back. What do you think Alex does every time he comes across a spare $566.
Understanding Hard Dollar and Soft Dollar Costs
Hard Dollar is the physical cost to your business, eg each scoop of chips that Alex cooks takes 50c out of his pocket.
Soft Dollar, is the perceived amount, or the amount you sell a product for, eg, each scoop of chips has a perceived value of $1.50
When you are developing your headlines or trying to come up with an offer to excite your clients, try and find things with a high Soft Dollar value and a low Hard Dollar Cost. A really good example is giving away a free consultation, because often the hard dollar cost is nothing. If you don't do consultations, start, even if only for advertising purposes.
Think what response a hair dresser would get if her add said, Free Bottle of XYZ Shampoo and Conditioner worth $25 when you get your hair cut and colored at Sallies Hair dressing salon.
Two things are likely to happen, firstly, she will attract new customers because she has a great offer, secondly, it encourages current and new customers to get a color as well as a cut which increases the average sale amount.
The really key thing here is the Hard Dollar cost, Sally should be getting the Shampoo and Conditioner from XYZ for free or at a heavily discounted price because of the free advertising she is doing for them, and because it might switch people from other brands to their brand.
If you don't have a product with a low Hard Dollar Cost, negotiate with your suppliers, think of the benefits for them, not just the benefits for you.
Sally knows that she can only cut 10 peoples hair per day, and if the offer is only valid for one week, then she knows how many free bottles she needs to negotiate. If she cant get all the free bottles that she needs, she could change the offer so its only valid on Tuesdays and Wednesdays because they are her slow days and she always has heaps of free appointments, this means she needs a lot less free bottles of shampoo and conditioner.
Steven Dunedin
Walk Off With Your Competitors Money
I am 27, self retired and I write the info sets that appear on Walk Off With Your Compeitors Money along with Karl Maryland.I have been involved in business since I was 16, and I think making money is the most exciting thing in the world. Its so easy and gives so many rewards which is why we help other people learn to make more money and get the rewards they deserve.
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