The More Things Change…
I was struck by the premise of a recent Advertising Age article (or, at least, my interpretation of it). The headline really says it all:
"Our Ads Will Work – We Promise!"
It seems that there are some publishing institutions that are beginning to worry that they might be threatened by the disintermediation of THE LAST 10 YEARS, and that perhaps THEIR REVENUE MODEL IS BROKEN!!!
Gee…ya think???
Now, I'm not one of those "new media snobs" who thinks that everything "old" is no good (I'm over 30 myself, so I may be a little biased). But I'm also not one of those "traditionalists" who think that things should never change and that new formats won't work as well.
…I'm kind of in the middle. For example, I wouldn't (and don't) advertise my business in the Yellow Pages Phone Directory…but, if I were selling services to senior citizens, I probably would have an ad in there (and a darn good one, too!) – written in a large font with a pleasing type face.
What bothers me about this gist of the article is the underlying message:
"If, after you spend your money and it doesn't work, we'll keep doing the thing that doesn't work for you – for free – until it does work."
Really?!?!? 
For how long?
That doesn't make much sense to me. I mean, if it doesn't work when I spent money on it, why would I want to waste my time dealing with it, knowing it's not going to work?!?!?!?
An ad's effectiveness is driven by two primary variables (both of which are Marketing issues, not Advertising issues), which are:
- How well you understand and have identified / understood your target market
- How well you have crafted the ad, so as to address your target's markets wants and desires
Do these well enough and you can have an effective ad.
"'We've been preaching that magazines engage readers like no other media," said Stephanie George, exec VP at Time Inc.'"…"In an era when a lot of advertisers ask for rollbacks across the board, the guarantee is what lets us keep rates steady or ask for an increase," Mr. Kotok said. "'We'd love to give you last year's rates,' we say, 'but then we can't give you the guarantee. If you take a nominal increase, we can give you the guarantee.'"
…if "you take" a nominal increase…? What?!?
Are you going to buy me dinner first???
If they are that confident that the "ads will work", why are they waiting until now to offer it? How exactly are they going to enforce the guarantee? What if the ad buyer wants to run an ad that the ad space provider doesn't think will work? Who gets to decide?
This kind of double-talk is kind of like writing in your subordinate's annual performance review, "What can I say about George that hasn't been said? He is truly in a class by himself! He handles work assignments with unlooked-for creativity." (oh, how I miss Catbert's Performance Review Generator – why, Scott Adams, why did you do away with that???)
I think they are missing the point, which is this: mass media / image advertising is NOT direct response advertising. There is a difference; don't confuse them.
To me, this is a poor example of "Risk Reversal"; a better guarantee from the magazine would have been:
"Buy our ad space and if it doesn't convert like you think it should, we will have our copywriters & creative folks work with you for FREE, to craft and test an ad that WILL convert "browsers into buyers", for your target market."
…but maybe I'm expecting too much…
How To Set Your Marketing Budget
I get this question all of the time:
"How do I set my Marketing Budget? How much should it be and what should I spend it on?"
…and, a traditional answer is, "Anywhere from 3% – 12% of your top line revenue number; depending on your industry, competition, market maturity, and other relevant variables." And that's been a standard answer for about 20 years or so, and seems to satisfy most accountants, controllers or investors.
But it's wrong!
If you're running a business, your marketing budget isn't a function of what your current revenue. It's dependent on something else entirely.
If you want to grow your company, your marketing budget is a function of the Lifetime Customer Value (LCV).
"What is 'LCV'?" (I heard you asking that…didn't think I was listening, did you??? 
).
Lifetime Customer Value (LCV) is the all of the money that your customer will spend with you on the front end sale, any up-sales you offer, as well as the back end offers, over a pre-determined period (typically the amount of time that they are your customer).
For example, let's say you're a skin care company and your lotion sells for about $60, and assume that you get a 1% response rate to your offer (a decent response rate to an ad is about 1% – 2%; a well-crafted & targeted offer can bring in a much higher response rate…). Let's assume that on average, each customer will buy 3 more bottles from you over the next three months, and each additional bottle will cost $40; your total LCV = $60 + (3*$40) = $180.
If the cost to acquire the lead is $60, and you get 1% to buy (400 customers), and each customer is worth $180, then you are getting a 300% ROI on your spend (…here's where you pull out your HP-12C & check the math…):
Formula: Return On Investment = Revenue Earned / Cost Incurred
$72k = revenue from the campaign (400 * 180)
$24k = advertising cost (400 * $60)
==> netting you a 300% ROI on your ad spend.
Is this a good return? It depends. It's better than what you'll find on Wall Street or in a bank, but it depends on crafting a good offer for a targeted list. In this example, we projected the kind of return we wanted to get, against our acquisition costs, which enabled us to gain the $72,000 in new revenue. If you've been in business for more than a year, you should have (or be able to figure out) what your LCV is. If you're a startup (as in the company above), you can either use industry comparables or <shudder> use the 3% – 12% of revenue as an estimate. If you do the latter, then set up your operations so you are measuring & tracking this number going forward, and document all of your assumptions about that figure, so you can adjust it based on actual market performance.
…but here's where it gets exciting – that was only one offer focused on one product!
Once you have a customer who has purchased from you and has the Know / Like / Trust Factor with you, you are in a position to ethically position your company to be considered for future purchases. In our example, the skin care company could position another product of theirs or one from their partners.
Or, let's just keep it simple and assume we only used that one offer on a bigger market segment, or improved the incremental performance of that offer? Again, incremental improvements add up to incremental sales…
Bottom Line: Any additional incremental revenue at this point just makes your ROI that much better.
In general, your ability to make profits upfront depends on:
- your product or service
- targeting the right market for your product or service
- your ability to craft and present a persuasive offer in a compelling manner
So, the question isn't, "How to set my Marketing budget?" The question you should be asking is, "How high is high?" "What are my financial targets I want to hit by when, and what are the upfront costs we need to incur to hit those targets, in terms of time, money & people?" This comes from your business strategy & your operational plan. Give me those data & I'll give you an accurate answer.
…not having a quantifiable answer to these questions is a result of laziness and reacting to your business, instead of thinking and managing your business, more than anything else…
Free Money From Google
Did You Know That Google Will Invest in YOUR business?
One of the best ways to get free advertising was to offer a discount coupon in a coupon book, which the coupon book publisher would then sell. The coupon publisher would make money off of the sales, and the people buying the coupon book would save money – if they redeemed the coupon. There was typically little to no cost to the business owner, and it would generally would position their business well. Whether or not the coupon was redeemed, the business owner still got the market distribution and potential increase in their market's awareness. The upside? Typically a very high response rate (better than 68% in many cases) – especially if the coupon book was heavily promoted and the coupon offer was compelling and well-written.
Local Businesses can still get some traction with coupon books – provided their advertisements are tied into their online presence. But there are many more options for business owners today – and one of the most overlooked is the coupon offer that comes with your Google Business Listing (Pssst – did you know there was one???) – and Google Coupon Feeds. Whether you market your products and services locally, many businesses are missing out on a FREE opportunity to market their business AND have Google promote you to the world. And with the Internet becoming increasingly mobile and interconnected, you can make sure your offer is presented directly to your customer when they are near your store and looking for a solution. In most cases, business owners should include a coupon of some sort in there.
So, what makes a good offer? Just about anything your customers would want. Offering a discount? Then give them a specific dollar figure versus a percentage. In most cases, numerical dollar figures have more of an impact, and carry more meaning, than a percentage figure does.
Many business owners we speak with aren't even aware of this feature. When you use yours, however, just make sure you don't make the mistakes that our hapless owner made in the picture above! In your business, grammar and math both count! 