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15 March 2011,
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BRAD’S RULE #3 Clarify the Objective of Your Advertising

15 March 2011
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Clarify the Objective of Your Advertising

A clear objective keeps you focused.  Your intention drives your results.  The purpose of your advertising defines the offer, the headline, the copy, and the medium – in fact, everything about the ad.

Why are you advertising?

This may sound like a silly question, but answering it – and really thinking about it – is especially important.

A clear objective keeps you focused.  Your intention drives your results.  The purpose of your advertising defines the offer, the headline, the copy, and the medium – in fact, everything about the ad.

If your intention is to “keep your name before the public” or “build your image” your ads will probably be long, vague, and run in places you (or your friends) think … maybe …. Are read by the people you want to reach.

In reality, you have no idea whether you ads are achieving your purpose.  A properly conducted Gallup Poll-style survey might show that your ads are doing worse than nothing at all:  they’re actually turning potential customers away!

In any case, I’m going to assume you have enough respect for your own money to not even contemplate these types of ads.

How defining your purpose can save you a bundle of money…

Only when you define your purpose do you have something to measure.

When you define your purpose, code your ads, and record your results, you’ll immediately learn which ads and which media work – and which don’t.

I installed this kind of measurement system in a client’s business.  The result:  90% of this guy’s advertising was a complete master of many.  90% of the sales were coming from 10% of the ads.

By “goosing up” the ads, we doubled this business’ responses – and slashed its ad spending 90%.

That’s the kind of effect you can get from following these rules.

Profit NOW – or, LATER … sometimes later is better for you…

Ads that work well are intended to make you money; the only question is:  how, specifically. Your business falls into one of two categories.  Either:

  1. You make a profit directly – sales from the ad more than cover the ad’s cost plus the cost of the product; or:
  2. You make a profit later – by creating a new customer who comes back again and again.

The best of all possible worlds is to get yourself into both categories, so you can create a new customer at a profit.  And get him or her to come back again and again.

You can do this by knowing what your profit is. -and where and when you make it.

However, some businesses are inevitably in the second category.  For example, there’s no way the Coca-Cola Company can ever create a new customer at a profit.  The profit margin on one can of Coke is too small.

Coke can only generate a return on its advertising by creating a regular customer so that a year, or even two years later, he or she begins to generate profits for the company.

Which category are you in right now?  The answer is not written in stone.  By following the rules in this Report, you’ll gain enough information about your ads to move yourself into the first category.  This will probably involve writing entirely new ads – and that process is beyond the scope of this Report.

But you’ll be motivated to do that – to experiment with new approaches, new offers, and new healings – once you can measure the results of your ads.

There’s a rule of thumb in the direct mail industry that states:  ‘to make a profit in the mail your retail price has to be five times the cost of your product’.

So here are two questions you should know the answers to:

  1. What is your profit margin on a new customer’s first purchase …?

Unless you’re in the business of one-off sales – that means:  you have nothing else to sell to a new customer – you should answer this question on a marginal cost basis.

Say you have a restaurant.  A new customer walks in the door.  Your profit on his purchase is the amount of money he spends less the cost of the raw materials involved in preparing his meal.

Should you allocate some percentage of overheads to your cost of advertising…?

Well, whether this new customer walks in or not, you’ve got to pay the waiters, the chef, the electricity and the rent anyway.  You’re going to spend that money regardless.

So the only marginal cost – additional money you have to spend to meet this new customer’s needs – is your cost of the food and drinks he consumes.

Say your average customer spends $20, and your cost of the food and drinks is four or five dollars.  That means you can spend $15 to attract a new customer – and you have a new customer for free!

The only exception would be if this new customer walks in on a Friday or Saturday night when you’re full – and you have to turn away a regular customer as a result.  That means you have no additional profit up front.

(So:  create an offer to bring in new customers on slow nights.)

  1. What is the life-time value, to you, of gaining a new customer?

The first sale is only the beginning of a new relationship.

Say – continuing with this restaurant example – your average customer comes back once a month with (on average) one and a half friends, and spends $20 per head.  Your average sale is $50.  Your marginal cost profit is $40.

But now you have to account for overheads.  Say that’s $20.  So your net profit is $20 per customer per month.  Or $240 per year.

If 20% of your regular customers leave town every year, the life-time value of each new customer is $825 (calculated for 10 years, using a discount rate of 10% to get the present value of that future stream of profits.)

That means if you spend $824 to get a new customer, you’d make a profit of $1 over a 10-year period.

I admit I have not included the cost of financing that amount for 9.9 years.  And I am not suggesting that you want to wait 9.9 years to get your money back!

But once you have calculated these numbers, you are in a position to measure the results of your advertising.

And:  to decide how much you wish to spend to gain a new customer.

There’s one other number you need to know: what percentage of your first-time customers become regulars?

If it’s 50%, then the annual profit from each first-time sale is $135 (half of $240, plus $15 on the first sale); and the life-time value is $412.50.

Say you run an ad that costs $210. You get six sales from the ad. That brings in a marginal cost profit of $90. You’re out of pocket $120 on the ad.

Three of them turn into regulars bringing you an extra profit of $60 per month. In two months, you’ve paid for the ad –and you’ve increased your profits by $60 per month.

What is the best place to put your money?

Once you have these numbers, you’ll begin to look at your business in a completely different way.

For example, what would be the return on your bottom line if you could take that same $210 and get your regular customers to come in one extra time per year? Or: spend (on an average) an extra $2 – or $5 – every time they come …?

Maybe you can persuade them to send their friends along –at a promotional cost to you of $1 per first-time sale.

The possibilities are endless.

– Brad Sugars –

Get your brochures & ads designed in the most effective way (ActionCOACH Fast Track program) … for price & detail information call now 021 2567 5775

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