(FREE) Tips for Setting a Successful Advertising Budget
Customer value. Setting goals. Accounts vs sales
Summary of the video (regular type)
My commentary (italics)
I’m not sure if this video was created by a non-native English speaker or what. But, it’s not the most coherent piece of information ever. Anyhow…I did my best to translate it into something useful. ENJOY!
How much is a customer worth to you?
Don’t spend more to acquire customers than they make you in net profit.
The simple formula to calculate the net worth of a VISITOR is:
Net profit on your average sale ÷ sales conversion rate
How do you determine net profit on your average sale? The most simple way is to take your net profit for a period (month, quarter, year) and divide that by the number of sales TRANSACTIONS (not items). If your net profit for the year was $50,000 and you had 5,000 sales transactions - your net profit on an average sales was $10.00 (50,000 ÷ 5,000)
Use the free linked spreadsheet to calculate your Net profit on average sale:
Tips for setting a Successful Advertising Budget
So…back to the net worth of a visitor…
If the net profit on the average sale is $10.00 and your conversion rate is 50 (visits per sale) then each visitor is worth $.20 ($10.00 ÷ 50). *Note: the video says $.50. So, either I’m missing something pretty obvious or the video miscalculated…
Say you spend $100 to attract 1,000 visitors. This means you are spending $.10 per visitor. 1,000 ÷ $100.
If each visitor has a value of $.20, then you will make $100 (net profit on average sale - cost per visitor) on that campaign.
1,000 × $.20 = $200 in net profit (before the cost per visitor). $200 - $100 = $100 (value of campaign).
HOPEFULLY, this all makes sense. To confuse matters further, the video still insists that each visitor is worth $.50 and the value of the campaign is $400. 🤷
Just use the (free) Tips for setting a Successful Advertising Budget spreadsheet! It’ll all make sense!
Set realistic goals
The goal (if you’re selling physical products) is to sell as much inventory as you’re buying. Or more - but you can only do that for so long.
Focus more on gaining recurring customers than making one sale. I guess this means getting the customer to create an account, rather than simply buying something and then disappearing? Measure conversions based on accounts in addition to sales?
The success of an ad campaign is measured by two things:
Click-through rate (clicks OR visits ÷ number of times people see your ad)
Conversion rate (sales transactions OR accounts ÷ number of visits)
If you’re not getting the results you expect, determine which of these two things is your weak link.
What’s a good click-through rate? Like most things - it depends, in part, on your industry. But, here are a couple of opinions…
1.6% is a good benchmark for your click-through rate. If you’re not reaching that, you should research how to increase it.
What about a benchmark sales conversion rate?
Let’s say that 2.4% is a solid starting point.
If only 2.4% of the 1.6% of people who click on your ad buy from you - that means that you can expect .04% (4 out of 10,000) of the people who see your ad to make a purchase.
If your click-through rate is low, then you might evaluate your offer. Why aren’t they incentivized to click? Look at ads for similar products/services. How can you improve them for your products/services? Don’t reinvent the wheel - build on what is already working!
If your conversion rate is low, then you might be attracting the wrong type of visitor. What did your ad lead the visitor to believe they would find when they clicked your ad? Are there too many obstacles between the ad and the purchase? Again, refer to landing pages for other products/services and copy the best elements. Then…make it your own!
Comment below
Which is YOUR weak link? Click-through or conversion rate?
What are your goals for click-through and conversion rates?