How To Evaluate Your Ad Spend

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Let me ask you a question. Do you do any type of advertising at the moment?

If you’re turning over more than $100,000, then more than likely you are.

Now let me ask you a second question.

How effective is it working for you right now?

Do you know how much it’s costing you to generate a customer?

These are INCREDIBLY important questions to answer if you’re doing any sort of advertising.

You need to know how much it’s costing you to generate each customer.

In other words, your cost per acquisition.

This can be easily figured out by dividing the ad cost by the amount of new customers it generated for you.

For example, if you spend $2,000 on a newspaper advertisement and you got 15 customers, your cost per acquisition (CPA) was $133.33 each.

($2,000 spend divided by 15 customers).

Now why is it so important to know that number?

Well there are multiple reasons…

First, if you’re not making more than $133 back from your average customer, you’re going to be losing money.

Now it’s possible that you’ll be losing money on the front end, if the typical first transaction is less than $133.

But if you know the lifetime value of your customer and have proper back-end offers in place, you’ll still be profitable.

However, if you don’t have any back-end offers, upsells etc in place yet, you need to make sure that you turn a profit right at the first transaction.

Second, if you know how much it’s costing you to generate a customer, there might be other ways to spend the money to generate more customers.

What if you could take that $2,000 and get 30 customers instead? Or maybe even 60?

For example, instead of advertising to people who never heard about you before, you might get new customers by joint venturing with a provider that has complimentary but non-competitive products / services that your ideal customer needs.

Or, you might create a customer referral program and incentivise your current buyers and vendors to send you new people in exchange for a share in the profits.

That way, you’ll be only paying for each lead once they actually become customers!

Here’s a recap of what I suggest you do next:

  1. Determine your current cost per acquisition of customers and clients
  2. Figure out how that money could be better used to generate clients
  3. Possibly join Strategy #1 with Strategy #2
  4. Implement!

My hope is that after reading about these strategies, you’ll reevaluate where your ad dollars are allocated and create a plan to maximise your results. (And therefore, substantially increase your profits.)

If you’d like help with putting this all into practice, give us a call at 1300 680 223. We can help.