In recent weeks I have covered the first four of eight common marketing mistakes which cost small businesses a fortune in lost sales and opportunities and in this article I cover mistakes 5 and 6.
5 - Failing To Test
6 - Not Knowing The Lifetime Value Of An Average Customer
If you would like to read the earlier articles first, here are the links to Marketing Mistakes 1 and Marketing Mistakes 2.
Failing To Test Sales Promotion Methods And Components
When you start measuring the results of your advertising and promotion, the next stage is to use these measurements to make your marketing as effective as possible.
You should start testing different adverts, letters, telesales approaches and sales presentations after you have captured your baseline data.
It may sound strange but little things make a huge difference in response rates.
There's a story that Dan Kennedy, a famous American copywriter changed one letter in a headline in a magazine advert and nearly tripled the response.
Isn't that incredible.
Just by adding an S and changing the advertisement from "put music in your life" to "puts music in your life" had such a major difference in the result.
Let's just have a look at a few numbers on an example where you try one advert and it is OK but not exciting and then you start testing headline, copy, offer, call to action and contact method.
Example Of The Benefits Of Testing
Imagine you owned a small painting and decorating business in an area of about a million people. You advertise in the local newspaper and that has a circulation of 100,000 as it goes to about 1 in 5 homes.
You advertise every week at a cost of £300 and receive on average four enquiries as a result of your advertisement, one of which you manage to convert into a customer.
Since the average order is for £1,500 with costs of £1,000 for the labour and materials, you make £500 profit from the job and therefore after paying for the newspaper advertisement your net profit is £200. Worth continuing with the advertisement but not very exciting.
Then you learn about the benefits of testing your advertisement and you change your headline.
Please always remember better marketing offers almost unlimited upside leverage.
It costs you the same to advertise and receive 1 or 100 responses but your cost per lead and cost per new customer fall dramatically.
Not knowing the value of an average customer
I'm trying to get you to see effective sales promotion as an investment rather than an expense.
If it doesn't get results it's just a cost, but if a lead generation method covers its costs and generates a profit then you'd want to do some more wouldn't you?
It's an investment when you spend money and get more money back.
Let me give you an example.
Cost of advert £1,000
Sales generated from advert £5,000
Profit from those sales at 40% margin £2,000
So that gives you a net £1,000 profit after allowing for the cost of the advert.
That's a pretty clear case that you should carry on and advertise again but what if you only had half the response? Is it worth advertising if you get £1,000 of margin on sales?
That depends on what level of these new customers come back and buy again.
If 50% of them come back you'd get another £500 margin every time they made all made a repeat purchase.
So successful advertising is still an investment if you take into account the lifetime value of the customer.
How much should you spend to get a customer?
It all depends on the profit you can make while they are a customer. That value is called the lifetime value and it's an important number to know.
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