Half of all money spent on advertising works wonders
Here’s how not to spend the other half in your business
Advertising works. It does. Next time you think it doesn’t, have a look at your grocery choices when shopping in the supermarket.
The reason Nike spends 30% of the price of each pair of shoes it sells on advertisement is that if they didn’t, they’d sell a fraction of the shoes they do.
But there is an old saying in the advertising industry that is still just as true now as when it when coined in the sixties by a famous CEO, that half of all money spent on advertising is wasted, if only we knew which half.
The big temptation that gets us as small business owners to spend more money on advertising than we should from time to time, is how easy it seems. It’s the easiest, least time consuming and quickest way to get more customers. It’s the reason the Yellow Pages phone books became so big and profitable all round the world. If you wanted more business there was a simple equation for the Yellow Pages: spend more money on bigger ads and the phone will ring more often… a direct correlation. Advertising sales people all over the world are trained to say: “Look, Mr business owner, you only have to make 2 extra sales this month, and the ad pays for itself, so what do you think?”
Good looking sales people
A perfect example of the temptation comes from a client of mine, John, who owns a gym. John was recently convinced to purchase a 3 month contract to have a couple of good looking young people hand out flyers about his gym with a special promotion offer on a couple of busy street corners. The sales person convinced John to invest the money because he only needed to get 10 people per month to take up the special offer in the flyer to pay for the promotion contract. The deal looked too good to be true.
3 months later we looked at the numbers when assessing whether or not to continue the promotion. It turned out that John’s Gym had indeed had some 60 people come in and take up the offer from the flyers, twice as many as the minimum needed to break even. However, nearly 50 of those people had cancelled their contract at the end of the special promotion period.
Luckily I’d insisted that John implement a system to be able to track the promotion and it became an easy decision for John, not to proceed with the contract.
The Golden Rule of marketing
The whole experience perfectly demonstrates two things you need to consider when deciding on any form of paid marketing, be that advertisement or some other kind of promotion.
Firstly there is a Golden Rule to consider:
If you can’t measure your return of investment, there is none.
Secondly is that when spending money on getting more prospects for your business, you better make damn sure you are going to convert a healthy percentage of those prospects to customers. There was nothing wrong with the offer that John made in the promotion, but there were all kinds of things wrong in his “onboarding” and “induction” processes in the gym. People came to the end of their promotion period and generally didn’t feel inclined to continue onto his full membership program.
I’ve seen this issue come back time and again. Business owners get convinced to spend thousands of dollars per month on Pay Per Click advertising in Facebook or Google for example. Lots and lots of visitors come to their websites as a result, but when they get there, they get lost, because there is no solid marketing conversion process in place on the site.
If you’re going to spend money on advertising, first make sure you’ve dotted all your I’s and crossed all your Ts … And then … Spend away.
This will be an extremely enlightening post for some to read. If you felt you need to debunk more myths in marketing and growing your small business, here’s another treat for you:
These truths will help you avoid some of the marketing pitfalls and business obstacles that prevent many small business owners from reaching their dreams.