Effective Advertising

“ Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”

John Wanamaker was a retail pioneer more than 100 years ago, and his now-famous quote is repeated often by business men and women when they think about advertising.

Do you often feel the way Mr. Wanamaker felt about your marketing and advertising? Do you feel like you’re wasting half of your money, and you’re not sure which half?

Let’s be clear. In 2017, it’s still possible to waste half of your advertising dollars. However, it’s easier than ever to avoid doing so. With the right tools and some careful planning, you can invest your advertising dollars wisely with an eye toward growth.


Let’s walk through a basic plan that will give you a framework to invest confidently in your marketing plans.

As we start planning, it’s useful to figure out how much a customer is worth. If you know how much each customer is worth, then you can determine how much you’d like to invest in acquiring more customers.

1. How much is each customer worth?
2. How much do I spend to get that customer?

It can get complicated to figure out what a customer is worth, but some quick back of the napkin math can shed some light on this figure.

How Much is Each Customer Worth?

Let’s do a little math:

• What’s your average order worth, in dollars? $____
• What’s the profit margin on the average sale? ____%
• How many referral sales do you think you get from each customer? ____

Let’s plug in some numbers as an example:

• Let’s say your average order value is $4,768.
• If your average profit margin is 13 percent = $620
• You think you get on average one referral sale for every four transactions. (25 percent referral factor) = $775

Here’s the equation for figuring out customer value:

• (Avg. Order Value: $4,768) x (Avg. Profit .13) x (Referral Factor 1.25)

In this scenario, each customer is worth, on average $775.

In some businesses, customers buy repeatedly, but in the shed industry that’s not as likely, so we’ll stick with the $775 number for now.

How Much Do I Spend to Acquire a Customer?

When you begin planning for how much you should budget to acquire that customer, it’s helpful to look back over historical data. It may be helpful to answer the following questions:

• How much money did I spend last year on all marketing expenses?
• How many customers did I acquire last year?

Here’s the equation to figure out your customer acquisition cost:

• Total Spent 2016 on Marketing:
____ / # of Customers in 2016 ____

Let’s say you spent $20,000 and that brought 210 customers through your door. That means your historic customer acquisition cost is around $95.
If you’ve been getting customers for around $95 each, and they’re each worth about $775 to you, then it seems that you’re set to grow. There’s some promise here.

Note: there may be sales expenses that we haven’t looked at that were necessary to get those customers (sales commissions, etc.), but for the purposes of this article, we won’t worry about those.

Planning for Growth

Running with our numbers from above, if you want to grow the business 20 percent this year, there are two primary levers you can move to effect growth.

1. You can increase the average sale amount.
2. Increase the number of customers.

Likely, you’ll do some of both. You can increase your average sale amount by up-selling options or increasing your prices.

Most of your growth will come from the second option: acquiring more new customers.

Sometimes businesses happen to be in the right place, at the right time, and their customer counts increase due to no fault of their own—it just happens. This can make them reliant on hope or luck for their growth.

Hope and luck are not strategies.

Let’s look at how to grow your customer count in a systematic way that will keep you from wasting half of your marketing dollars, and also keep you learning about the best ways to market your business.

How Will You Grow Your business?

Here are the primary levers you can move to grow customer count:

1. Increase the amount of leads you generate.
2. Close a higher percentage of your sales leads.

Let’s leave the second point for another article and look at increasing the amount of leads you generate.

If last year you had 210 customers (as we mentioned earlier), and you want to grow that to 250 customers, we can plan for increasing our lead generation to get 250 customers.

Do you know how many total leads you had last year that resulted in these 210 customers?

Let’s say between email, walk-ins, website leads, and phone calls, you had 983 leads that came to you. You turned 210 of those into customers, which makes your “conversion rate” 21.36 percent (which is pretty good, actually).

Since we’re not addressing number two (increasing your conversion rate) in this article, we’ll focus on growing the amount of leads required.

In the example above, 983 leads turned into 210 customers. This year, to meet your growth goals, you’ve decided you want 250 customers. If your conversion rate stays steady at 21.36% that means you’ll need to generate 1,170 leads to end up with 250 customers.

That’s almost 100 leads per month to reach the goal—that sounds doable.

Smart Risks

There are so many ways to generate sales leads that it’s tough to know how and where to start allocating marketing dollars. Newspapers, Facebook, radio, TV, Twitter, website, blogs, Instagram, Pinterest, direct mail, display ads, outdoor ads, sponsorships, influencer marketing, events, and more.

With all the different platforms and tools at our disposal for advertising and generating leads, it’s easy to react in one of two ways:

1. Paralyzed by choice: We get anxiety about having to do ALL of it. So we do none of it.
2. Marketing magpies: We get excited about ALL THE SHINY THINGS, and flit uselessly from one new thing to another.

The way to avoid these two extremes is to be guided by the 70/20/10 rule.

The 70/20/10 rule says that you should divide your advertising spending in the following way:

• 70 percent should go toward a safe bet. Keep investing in what has been working. If you get the bulk of your business from a newspaper ad you’ve run for a long time, then keep doing that. This is your bread and butter.
• 20 percent of your budget should be spent in moderately risky ways. Use this to investigate new platforms or messages that you’re pretty sure will resonate with your customer base, but you’ve never tried. Maybe this is Facebook ads or an influencer marketing deal with a local celebrity.
• 10 percent wild card. Use this part of your budget to take risks. You can afford to blow this, but occasionally you’ll find something that pays off handsomely. Advertising on satellite radio, sponsoring an online message board in your niche— stuff that is niche, but crazy enough to work well.

Now that you know you’re not going to waste half of your money, you can get busy growing your business with confidence.

To recap, here are the steps we just walked through:

1. Based on your desired growth, figure out how many customers you need to hit your goals.
2. Generate more sales leads by testing new marketing methods, while maintaining your bread-and-butter marketing channels using the 70/20/10 rule.

John Wanamaker built a retail empire in the early 20th century, and he worried about wasting half of his marketing dollars. You’re building a shed empire, or at the very least wanting to grow your business with confidence.

Don’t waste half of your marketing dollars by reacting to the latest pitch, or getting distracted by a fancy new platform or tool. Stick to a disciplined approach, plan your growth, work out the amount of leads you need, and attract the customers you need to hit your numbers.


Comments are closed.

Current Issue

April/May 2024