A client (we'll call her "Susie") came to a coaching session last week in great distress. During our prior week's session she had just learned how to complete a competitive analysis. You can check out this post here if you want the same instructions. She spent the week working hard on her competitor profiles. To her dismay she discovered that one of her competitors (we'll call him "Frank") was kicking her butt in website traffic. She could not figure out why. Frank was relatively new to the market, he had no obvious differentiator, no mafia offers and wasn't showing up anywhere on her organic search tests. Susie was worried about the impact that Frank was having on her revenue growth. After digging in to Susie's results we solved the mystery. Frank was spending lots, and I mean lots, of money on Adwords traffic. In fact 75% of his traffic was coming from Adwords advertising. Frank was throwing money down the toilet.
Susie felt better in an instant. Why? Because we had already implemented, tested and discarded Adwords as a viable advertising channel for her market and unique product set. During the test we discovered that although Adwords brought a surge of traffic to her website, it resulted in extremely low conversions. In fact, for every dollar Susie spent in Adwords traffic she only reaped $.07 in conversion revenue.
Frank was most likely losing at least $.90 of every dollar he spent in bringing traffic to his website. Frank didn't know his Return On Investment (ROI).
You are not Pepsi. You can't afford "awareness" advertising. You must know the exact dollar value you are bringing in revenue for every dollar spent on advertising. Setting up and analyzing your advertising ROI is often hard, tedious work and it is easy to come up with an excuse not to do it. Here are some of the most common excuses. If you are using any of them, you are throwing money down the toilet.
Look at my traffic!
Clicks on website, feet in the store. They make you feel great. "Look at all these people! We are doing great!" But as any Groupon merchant participant will tell you, and as Frank should have been able to tell you, it could be that every person walking in to your store is costing you money. Frank was losing money every time someone clicked on his ad. Sure all that traffic felt great, looked impressive and stroked his ego, but it was slowly and surely killing his business.
But everyone else uses (insert advertising method of choice).
If Susie and I had not conducted our Adwords ROI experiment, chances are that Susie would be using Adwords too (as were the majority of other companies in her industry). After all, if everyone else is doing it is must be the right thing to do… right?
Even if Frank had discovered some magical Adwords secret that we missed (unlikely - it's not all that difficult) we still knew that that advertising method didn't work for Susie. And if it doesn't work, don't do it.
But we've always done it this way.
Another client told me the story of a local family business. Every year this gift shop threw a huge holiday party for their customers. This was a very expensive party. So expensive that the store spent $7,000 on producing and distributing a full color brochure that no one looked at. There were always copious left-overs which they threw away. The purpose of the party was obviously to get the attendees to do their high-end holiday gift shopping with this small family owned business. So what was the ROI on this lavish party?
The store had no idea.
They should have been tracking exactly which customers attended, exactly how much the cost of the party was per head and exactly what each attendee spent in their store for the following year. With that data a simple calculation would quickly determine the value of their "advertising". As it was, when my client asked the store owner why they spent $7,000 on a throw away brochure the response was, "we've always done it this way", followed quickly by, "you don't understand my business".
Trust me, I don't need to "understand your business". The numbers are what count. If you are using this excuse to avoid calculating ROI, you are throwing money down the toilet.
So here's your assignment. Review the advertising methods you are currently using and write down the average return for every dollar spent. If you can't do that, stop that form of advertising immediately until you figure out how you can calculate the ROI of that expenditure.
Maybe you have always done things that way, maybe everyone else is using that method of advertising, maybe you will have a drop in traffic…. maybe you are throwing money down the toilet.
Did you discover a leak in your advertising spend? Let me know in the comments below.
*Photo by Lynda