Many business owners believe that if they shell out large amounts of money to promote their products they’ll receive large returns. It’s a logical notion in theory but in practice, that’s not what typically happens. Sure, the marketer will see a return in the way of potential consumers showing interest but marketing isn’t a “one-dollar equals one customer” kind of thing.
Yes, investment and return on investment are directly related to one another but they are not constants of one another.
When it comes to return on a marketing investment, the general rule of thumb is to expect a 1% to 3% response from the total number of potential customers you’ve contacted. In simple number terms, that means that for every 100 people you contact, you can expect to have 1 to 3 people actually respond to your marketing. I know what you’re thinking: That could be a lot of money for such a small return. In reality though, it’s not; unless you spend more on your per consumer marketing than a single product / service costs, that is. Here’s an example:
Say that you’re an ink cartridge dealer and you want to send out a direct mail postcard advertising a buy one, get one half off offer to approximately 500 customers. If you purchase leads, that might cost you $50.00 ($0.10 / lead), printing for 500 postcards might cost you $50, and bulk rate postage might cost you $0.32 / mailing. That brings printing and mailing costs to $160.
Presuming that the average price of an ink cartridge was $20.00 then for every customer that responds, you stand to earn at least $30.00.
Well based on the 1%-3% rule, your sales would be $150.00 to $450.00. Now, of course you’d like to be on the 3% end to turn a profit but having that 1% return is valuable too. If you were able to get 1% of your audience in the store once, you’ll do it again (especially if you provide another special offer!) and repeat customers are the life of any business. You’ll make a profit when those customers tell their friends about your store and when that 1% returns for another set of cartridges themselves.
Prefer to see your returns sooner rather than later? Then plan out your marketing and be very specific about who you’re marketing to. Remember: The examples above are based on marketing to general audience. You’ll increase the percentage for potential returns if you research your market and focus your advertising accordingly.
Just think about it: If you sent out that same postcard out to 500 households with school age children right before school starts again, you might get a 5% – 7% response instead of the standard 1% to 3%. In that scenario, your sales would range from $750 to $1,050. Sounds better, doesn’t it? Well, give it a try and let me know how things work out for you.
As always, if you have a marketing question that you would like me to answer, send me an email at AskTanisha@TheLoftyEntrepreneur.com or ask@madamenoire.com.
Tanisha Coffey is a professional writer and marketing consultant based in metropolitan Atlanta, Georgia. She provides her services through the strategic marketing consulting, professional copywriting and independent author services firm Scribe, Etc.
