It’s a question as old as business itself: How can a company be sure it’s spending the right amount of money on the right kind of marketing so that it can sell more products or services to increase profitability and, ultimately, enhance shareholder value?
Advertising dollars without an evaluation plan are dollars wasted. You must know BEFORE you spend one dime what you expect to get as a return on your investment, or ROI, and you must have a plan for knowing whether or not the expenditure was worthwhile.
ROI is a measure of the effectiveness of your advertising. How much you made compared to how much you spent or invested.
First you must be specific. Set your goal. To start down the path of marketing/advertising without knowing what you want to achieve is easy. Most everybody starts that way. The problem, you will never know if you got where you wanted to go. More specifically, you will never know if the marketing strategy worked!
If you spend $1000; attract 10 new customers who each spend an average of $50 dollars — this is not good: $50 x 10 customers yield $500. You just spent $1000 to earn $500.
Measure your investment. Your ROI is calculated by dividing your sales by your advertising costs. Example above $500 / $1000 = 50 percent. Not good. Bad investment. You must have a minimum of 100 percent simply to break even.
“Oh”, you say, “they will come back”. Okay, then your strategy simply for breakeven must be 10 new customers spending $50 each and returning a second time to spend $50. ROI: $1000/$1000 = 100 percent. Okay, but still not good enough. Why all the effort and energy just to break even?
The most effective advertising gives you a high ROI. You get a high ROI if you spend very little to advertise and still get sales.
The second critical step in ROI is how do you measure the effectiveness of the ad? Be sure to collect data so that you can calculate your actual ROI. If you are using multiple advertising methods, you will need to track sales or income as a result of each type of advertising.
• Ask prospects that contact you how they heard about your business. (Write it down, keep a tally – you cannot remember in your head and measure effectively).
• Include a code with your advertising and ask prospects to include the code with their order or inquiry. (Codes work well to track results from multiple advertising campaigns that are occurring concurrently.)
• Keep advertising campaigns separate from each other to test new markets.
• Feature a new product / service and market it exclusively in multiple media.
To know if a marketing strategy is effective you must a) know your costs (easy enough) and b) know how many customers responded to the advertising strategy ( more complex but critical). Be creative.