Campaign profit - This is the money that's left over after
your advertising campaign. Hopefully it's a positive number. If it's
a large positive number, why are you bothering to read this article?
Write up how you did it and let me know! If it's a small number, or
worse, negative, then we need to continue this article and talk about
how to improve the situation.
As the business owner/operator, you have some control over each of
these elements. Tweaking each one will help optimize the profits from
your advertising campaign. However, some changes can cause more harm
than help and sometimes some of the optimizations will conflict with
Doubling this number obviously doubles the profit, assuming the rest
of the numbers remain the same. So advertise as far and wide as makes
sense for your product. Bear in mind that the assumption that the
other numbers will remain the same is not always true. You can easily
get impressions in front of the wrong audience. Advertising to the
wrong geographic region, or age group will kill your clickthru-rate
and waste your advertising dollars. Increase the number of
impressions as much as you can, but be aware that there is a limit to
the audience that would be interested in your product.
Improving the clickthru rate
Again, doubling this number will double your profits, assuming that
the rest of the numbers remain the same. You can increase your
click-thru rate by doing one or more of several things:
- Make your message relevant to the viewers current needs.
Advertising Christmas lights in July is probably a waste of money as
is advertising sailboat rudders in Car & Driver magazine. The great
thing about the Internet is you can make some educated guesses about
the mindset of the viewer. For example, if you are purchasing ads on
a search engine, these are typically tied into what the user is
searching for. So your ad for Christmas lights will only be displayed
to those people searching for Christmas items. The boat rudder ads
will only be displayed to sailing fans, etc.
- Use action verbs. Tell the viewer what to do. While it seems
obvious that the viewer should pick up the phone and "call
now!", ads that prod the viewers towards a specific action such
as "come right down", "click here", or "call
now" will do much better than passive ads that merely say
"We've got a great price on X".
- Define your benefit to the purchaser. Never assume that the viewer
will make the connection between your product's feature and the
benefit's resulting from it.
These suggestions are all advertising refinement ideas and there is
a ton of material that has been written about it. I'm sure that there
is lots more that I'm not aware of and many thousands of times what I
can include in the space of this article. However, also be aware that
there is a VERY important reason to REDUCE your click-thru rate:
Several Internet advertisers have started accepting some of the
risk of the advertising game. These are typically pay-per- action
schemes. Pay-per-click, like Google and Overture, is the most common,
meaning that you only pay a fee if the viewer clicks on your
advertisement. This is a wonderful deal for the advertiser because it
simplifies the first portion of the equation, i.e. simplifying
(Impressions * Click-thru-rate) to just Click-Thrus.
The risk is lower for the advertiser because users must be mildly
interested in the product they're selling in order to click on the ad
in the first place so the quality of the visitors to your website
should be higher. Since you're paying for every click, you don't want
to waste that money. You want the people who have clicked on your
advertisement to be actually interested in purchasing what you have to
sell. Think of it as cherry-picking the good customers. To do this
effectively, be as clear as possible on what it is that you have to
sell. This will winnow out people who aren't interested in your
specialty. For example, say "Reproduction 60's Mustang
Equipment", not "Antique Auto Parts". After all, if
you don't sell Cadillac parts, you don't want to pay the clicks of
people looking for them.
Improving your conversion rate
This is a bit of an art and is almost completely dependent on the
quality of your website. You've brought an interested prospective
buyer to your website, now you need to convince him or her that your
product is the one that they've got to have. Reams of material have
been written on how to improve your website by improving navigation,
graphics, color and font choices. However, don't forget the
fundamental fact that the prospective buyer is looking for information
about your product. Lots of glossy, beautiful graphics, a Flash
splash screen, etc. all may please the VP of Marketing's ego, but what
the buyer wants is cold hard facts. How much is it going to cost,
what will it do for the money? Above all else, you MUST answer these
Any improvements that you make to your conversion rate go straight
to your bottom line. Your advertising expense is up at the beginning
of this equation. Any additional purchases you can wring out of the
traffic that you've bought are basically free.
In general, I recommend avoiding advertising any give-aways. While
it can greatly increase your click-thru rate, it will also drive your
conversion rate down. There are many email newsletters dedicated to
locating the current crop of cool prizes and free stuff being given
away. If your aim is to collect lots of email addresses, go for it,
but if you're trying to make sales, hunt for the people how need what
A good place to spend some effort is to customize the URL that your
site visitors go to when the click on the ad. Set up a separate
landing page for each advertisement that you're running. To continue
the car theme, if you are advertising "Reproduction 60's Mustang
Equipment", send the user directly to the Mustang equipment.
You'll lose a majority of your site visitors if you just dump them at
the home page of the website and they've got to search out the Mustang
section. This way you can run separate advertisements for Mustang
folks vs. MG's vs. Buick's, etc.
Improving your Average Sale
In general, the more they buy, the more profit you'll make, so
encourage the buyer to open their wallet as wide as possible. You've
got lots of leeway to experiment here and any or all of the classic
techniques can apply. Buy two, get one free. Discounts on product X
if they buy product Y as well. Optional upgrade packages. Try out
different techniques and play around. Offering different option
combinations and packages is a great way of "updating" your
website without making any changes to your core product line.
Increase your profit margin
Again, there are many classic ways of doing this, raising prices is
one, lowering your manufacturing costs is another. You don't want to
lower the manufacturing costs too much or your product will get a
reputation for being shoddy and your sales volume will drop.
Everything is a trade-off.
Frankly, one of the best ways to improve your profit margin is to
raise your prices, however doing so can slaughter your conversion
rate. Still, it's still possible to make good money by doing this.
For example, if you sell widget X for $100 a pop and you make $20
profit on each sale, a sales volume of 1000 units will net you $20,000
in profit. If you increase your price to $120 each, your profit on
each sale will double to $40. True, your sales volume will drop.
However, you only need to sell 500 units to make the same amount of
profit. If the sales volume only drops to 600 units, your profit will
actually increases to $24,000 with fewer sales.
Lower your Advertising Cost
This is the final element that you can modify in the equation. The
less money going out as advertising fees, the more money stays in your
pocket. While the old saw says that you've got to spend money to make
money, you don't need to throw it away. You can also strike a harder
bargain with your advertising suppliers, for example, never, ever pay
the rate card price. Buy in bulk for cheaper rates. Experiment and
try alternative venues that are cheaper.
By far the best way to stretch your advertising budget is to use
this equation and measure the success of each advertising campaign.
If the campaign isn't paying for itself, STOP! Measure and evaluate
the results. Know what you're paying for and what you're getting for
your money. Plow your money into the campaigns that make money and
kill those campaigns that don't.
Note that the entire thrust of this paper is aimed towards direct
sales and marketing. There are entire classes of products that do not
sell well through direct marketing so the equation will break
down. Cars and other big ticket items are a good example. Most people
won't go to a website, lay down their credit card and order a $25,000
vehicle. A good website will assist in making car sales by providing
factual information to prospective buyers. It can become an integral
part of the marketing and sales pitch, but without the direct sales
link, it's very difficult to quantify it's effectiveness.
You'll also read a lot about "branding" as a reason for
advertising. Simply put, branding is an attempt to link your company
name with the item you sell. The end goal is to have the consumer
immediately think of your product when they need it. Kleenex and
Xerox are both good examples of highly branded products because their
brand name has become the generic term for any such product. This
kind of branding effort is generally reserved for those companies with
deep pockets willing to waste their money on warm and fuzzy
advertising. For the vast majority of small business advertising on
the Internet, I don't believe that it's worth the effort and expense.
In the future, I'll be writing several follow-up articles on
specific techniques to measure and improve various portions of this
equation. By discussing each item separately, I'll have the time and
space to provide more specific examples.
If you have any comments or questions, please feel free to drop Rene an
email at firstname.lastname@example.org. If
you would like assistance in setting up this kind of feature on your website,
please contact us for a quote.