Marketing by numbers: How to dial-up next
year's sales figures!
 If I had a dollar for every time someone asked me
what percentage of their sales they should be spending on advertising, I’d be writing
this column from Aspen!
Problem is, it’s simply the wrong question to ask. And
I’ll show you why…
Let’s assume that the objective of your advertising is to generate
sales. If this is the case (and I truly hope it is) it seems logical that your
promotional expenditure should precede sales – and not the other way around. (Surely
you don’t make sales just so you can afford to advertise?)
Your advertising expenditure should determine your sales volume. This
means that your advertising budget should be calculated by multiplying the number of sales
you plan to make in a given period by the amount you need to invest in advertising to
generate each sale (your ‘acquisition cost’). So, if you decide you want to
double sales, you simply double your promotional spend.
Most organisations use sales volume to determine advertising expenditure
because they simply cannot detect a relationship between advertising spend and sales!
If you can’t measure the relationship between advertising expenditure
and sales, it’s either because you don’t have a system in place to make such
measurement possible, or because your advertising simply doesn’t work.
Either way, building a system to measure the effectiveness of your
advertising should be your number one priority.
Your first step is to calculate the amount you are prepared to invest in
advertising and promotion to acquire a sale (your ‘allowable acquisition cost’).
When determining this figure, be sure to consider the lifetime- rather than the
transactional-value of a typical client.
Once you know what you can afford to spend to acquire a sale (or a new
client), your next step is to measure what you are currently spending.
To do this you need to record a ‘source’ for every sales inquiry
your business receives. It’s best to determine the source of an inquiry at the very
first point of contact. Make it compulsory for your reception staff to ask inbound callers
what prompted their calls – and add a compulsory source field to any forms on your
Website.
If you know the source of every sale, it’s now a matter of dividing
the number of sales you receive from each promotional campaign in any given period by the
cost of that campaign. This will give you your acquisition cost – itemised by
promotional campaign. If your average (actual) acquisition cost is lower than your
allowable acquisition cost, you should reinvest the balance into additional promotion. If
it’s higher, you need either to find a more cost-effective promotional campaign, or
to increase the price of your product.
Once you understand the relationship between promotional expenditure and
sales – provided you have promotional campaigns capable of generating sales at or
below your allowable acquisition cost – you really can ‘dial-up’ next
year’s sales figures.
[Sales
process design Index] [top] |
