March 23, 2011: If you are a small business & you do not know your cost per person…go grab your keys, lock the door & put up a sign that says “Sorry, Out of Business”. I could be much more crass and say “Sorry, We Had a Good Business Idea, but Don’t Know What A Business Plan Is”.
Why Should you know this simple number? (If you don’t know it, go here to calculate and convert for your type of biz – or here for another good article)
Every opportunity to promote your company that comes along should be calculated on how it will benefit your bottom line. Don’t get sold on how many eye balls see you, how many times your name is mentioned or who you are gong to be associated with (of course these are essential to know when calculating your RISK & ROI of each promotion), it’s about WHAT’S IN IT FOR YOU? And let’s be honest, you don’t have “general branding” marketing dollars – do you? So be picky where you spend those valuable marketing dollars.
Let’s Crunch Some Numbers:
You are selling a widget.
Using the above formula, you have figured that your cost per customer is (X) and you have an opportunity that fits both your demographic & psychgraphic profile of your desired client. Your objectives & strategy line up as well (if you don’t know what these are – find your sign).
I am not a math wiz – but here is what jen math looks like: Y/X=Z
Cost Per Customer: $10
Need to sell 50 widgets to make the opportunity pay for itself.
…and of course you have added some kind of tracking (text, phone number, super secret word of the day, funny face, certain product etc) that will tell you EXACTLY where those 50 people came from.
I found this blog comment on a post on MarketingProfs.com when I was subscribing – now I am not & I can’t find the link. sorry, looser link….but some good info regardless that I scraped while researching for this post.
On top of that, I’d calculate the ROI by looking at:
Cost per Acquisition (CPA) = Cost of campaign / Number of sales
Return On Advertising Spend (ROAS) = Total Revenue Resulting from Sales / Cost of campaign
PROFITABLE Return on Advertising Spend (PROAS) = (Total Revenue Resulting from Sales * Margin) / Cost of campaign
My favorite is CPA. I use it to compare advertising campaigns quickly
PS: Thanks Tac – I needed the push.