Joined: 13 Dec 2006
Location: Cleveland, OH
|Posted: Dec Sun 17, 2006 2:50 pm Post subject: Can't Afford NOT To Advertise
|Can't Afford NOT To Advertise
"I can't afford advertising." Wish I had a nickel for every time I heard this one. Ever consider what you're up against when you fail to advertise? For starters, no matter how cheap you price yourself ... no matter how awesome your customer service is ... no matter how hard you try, you're going to lose customers at a clip of 20% or more per year.
People are fussy.
Marketers know that it's hard to stop the business leaving through the back door, so they need new customers comin' through the front door. Sure, you're thinking that referrals will make up the difference. And they might. But they might not.
Yes, if the cost to "buy" new customers exceeds the gross profits you'll generate in a reasonable amount of time, you're right ... you can't afford advertising. If someone tries to convince you that advertising is for everyone, you're probably hearing bad advice. But, I find most can afford advertising. Let me explain. Let's say you invested $2,000 in advertising last year and netted $25,000 in sales. After paying for the cost of the goods sold, you've put a gross profit of $10,000 in your pocket. When you run the numbers, you quickly realize every advertising dollar invested nets you five dollars in gross profit. Nice!
It's easy to know if your advertising pays. Simply add up your advertising dollars from last year. Divide that number by the number of new customers you've landed. That number will give you the average acquisition cost of one new customer. Then calculate the value of one new customer. That's easy, too. Just divide last year's total revenue dollars by the number of total customers you have. Once you calculate the value of one new customer, you might find that not only can you afford advertising, but it might be one of your best investments ever.
Source: Markus Allen's Marketing Tip of the Day