Digital Advertising 101: How to Profitably Buy Customers
Advertising is an investment.
But most small businesses don’t see it that way.
They fear wasting money and as a result miss out on a great opportunity.
Advertising is the quickest way to propel your business.
Online, you can measure the entire sales funnel and see where customers are coming from.
So you can easily determine the effectiveness of your advertising.
You just need to figure out these two important advertising metrics.
Here’s how you can come up with an online advertising budget and profitably buy new customers.
The Two Important Advertising Metrics
The internet provides a great platform for low-cost, high-yield marketing and advertising.
There are two metrics you need to figure out.
First, you need to determine what the customer’s lifetime value is.
This number depends on your business. But most people know that it’s far easier to keep an existing customer than find a new one. So figure out what each customer is worth over the average life of their purchasing, and you’ll be surprised.
Sometimes an easier metric to find is the cost of the one purchase you’re advertising. This is more straightforward and can help you when calculating the next step.
Second, you want to figure out how much it will cost to acquire each customer.
When you know how much your customers are worth, then you can figure out how much you can afford to advertise and still make a profit.
In order to illustrate, we’ll focus on Google Adwords.
Google Adwords provides a great, direct advertising opportunity for any business.
I’ve created a simple model that will help you determine how much a customer is worth, and how much we’ll need to spend. It’s not a formal sale forecast, but it gives us a quick estimate.
By changing the numbers in BLACK, the calculations in BLUE will immediately adjust, giving you an easy way to run simple scenarios. Please note that the calculations don’t factor in timing differences.
Initially you’ll want to know the average Cost-Per-Click (CPC), and if that number is optimized (changes based on competitive pricing) or static (won’t change).
Then you will want to track your total cost-per-click for a given period of time (daily, weekly, monthly, etc.).
Now, focus on conversion rates, like conversion percentage, cost per conversion and the total conversion cost.
You can use a simple tool like this to quickly run a few scenarios and determine if your advertising will be profitable before spending a dime.
When you can figure out how to profitably buy customers through advertising, then there’s really no limit to your growth.
The Two Most Effective Forms of Advertising
Advertising is a critical part of your promotion plan.
It’s one of the fastest ways to build buzz and generate leads or sales.
But there’s no one size fits all model. You can’t just throw money around.
Large businesses can use every type of advertising because they have the capital to back it up.
But small businesses need to figure out what type of advertising is right for their them.
Here are the two most effective types of online advertising business should be using.
1. Brand Advertising
This type of advertising focuses strongly on the display of the brand, logo, and message.
Offline, that includes TV advertisements, radio spots and billboards. Online, it’s mostly banner ads and other forms of integrated advertisements.
The main metric you’re using (and paying) is CPM, or Cost Per Thousand customers.
You want to know both the total reach, and unique impressions to determine your cost/benefit.
Display advertising is usually difficult to track and measure directly, but it’s powerful nonetheless. It’s the single best way to reach as many people as possible.
Sponsorships and promotions would also fall under this category, although the benefits are somewhat intangible.
Another example of using brand advertising is retargeting.
Have you ever noticed that specific ads will follow you around the internet? They place tracking cookies on your computer, and are trying to get you to come back or remind you to fulfill an abandoned purchase.
2. Direct Response Advertising
This type of advertising wants to elicit a direct response from the customer.
The best online example is Google AdWords.
When using Pay-Per-Click (PPC) type advertising, you’re paying based on each action a customer takes with your advertisement.
When analyzing Cost-Per-Click (CPC) advertising, you want to know the volume, competition, and average CPC bids. That helps you set up a framework to determine how much it will cost to acquire customers.
Direct response advertising is easier to measure direct results. Online, you would send this paid traffic to landing pages with Opt-In forms or sales pages.
You would then measure your conversion rates to determine if the advertising was cost effective. How much you could grow by investing more in advertising, or by increasing the conversion rate?
Another new variation is paying based on engagement. There are a few, exciting social media platforms that are now using this to track the ROI of social media advertising.
Two perfect examples are Twitter’s new Promoted Tweets and Accounts platform, and Social Rewards. You only pay when someone takes action (Click through, ReTweet, etc.) with your advertisement.
Advertising is an integral part of your marketing strategy. It’s the best way to reach people and get the quickest results.