Measuring marketing ROI

There’s nothing like the smell of a new business in the water to bring out all the marketing sharks. In the few months my business has been open we’ve been contacted by numerous radio stations, newspapers, magazines, phone directories, discount coupon websites, even a company that puts video ads in taxi cabs. Every one of them has tried to convince us that they are the best avenue to reach our target demographic.

Of course if we’d listened to them we would have spent all the money we had to start our business in the first place and had no business to advertise. And I doubt most of them would have cared.

I’m not here to tell you not to spend money on marketing. What I’m going to tell you is to pay close attention to your results and how much it cost you to get those results. And don’t just rely on the marketers to give you metrics as to how you did. Make sure you’re regularly polling your customers about how they found you.

When we first opened up we bought three months of radio advertising at a cost of $2000 per month. For the first month or two most of the people who came in (which wasn’t that many) said they heard about us on the radio. During our third month we got street signage up, including a sandwich board sign of our own design. Ever since nearly every new customer has said they found us through our street signs. Total cost: about $400.

So let’s be generous and say that our first 100 customers came through radio. We spent a total of $6000 on radio advertising, or an average of $60 per customer.

Now let’s be pessimistic and say only about 100 of our 200 customers we’ve added since then has come from our street signage. That works out to about $4 per customer. That’s quite a difference.

I won’t go so far as to say the money we spent on radio was wasted. Word of mouth is the best form of advertising, but you can’t get that without customers. Any customers we got into the store in those early days were valuable, because they started to tell their friends. Some of our best evangelists were found through the radio campaign.

The main point I’m hoping to make is that you must market your business to survive. Very few have the option of not spending anything on advertising. However, do everything you can to monitor the response you get from the different types of advertising you try. You’ll find fairly quickly what approaches work better than others. Don’t rely on your advertisers to come back and tell you how they did.

One other thing: Something we noticed is that nearly every advertiser wanted us to offer something for free to help pull in the customers. There’s nothing wrong with that approach, necessarily, but be careful.

There are three types of people who respond to free offers; people who already shop your store, people who come in for their freebie and then never come back, and people who come in for their freebie and become regular customers. You’ll note that only one of those three are the ones you’re trying to reach. Make sure you track how many new customers who come in come back again when there’s no free offers. Otherwise your results may be inflated, looking better than they really are.

Marketing is essential for business. But with a little extra effort you can find out what works and what doesn’t, which allows you to spend your limited resources more efficiently. There are plenty of advertising channels out there who will be more than happy to let you throw money at them. Just remember it’s not so much what you spend as how much you get back as a result.

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