Continuing my mini-series about business maths and business metrics, I wanted to talk to you today about “return on investment” and the apparent reluctance of some business owners, online and offline, to invest in marketing at all.
As I said in the last article, it’s like opening a shop but not being willing to spend on signage, A-boards, or any kind of advertising.
My proposal, a while ago, to take on a tiny number of clients on a “no win, no fee” basis for 3 months just to see if I liked working that way better, brought an interesting slew of marketing investment conversations..!
Ranging from people who know their back end sales numbers inside out, through to people with no traffic, no list, sometimes no product ready to sell, all of which which means no business at all to speak of really.
There were also people in some MLM opportunity or other who thought I was going to promote their business for them, on a commission only basis, even though it’s not actually their business at all and could be whipped out from under their feet at any time.
I also spoke with some genuine business owners with “real world” businesses in nice tight niches who had really great opportunities to expand and who seemed initially keen to do that. However, they didn’t seem to know how to do the sums to work out the potential profit potential, or whether they wanted to invest to market themselves better – or even if they were ready to go ahead and grow their business at that time.
I get it. Change is a scary thing, especially change that might involve investing some even relatively small-ish sums of money, for ad click costs for example.
I don’t know if it’s because they were so close to the wire, profit-wise, that they had no spare cash, or because they simply didn’t fully understand the concept of “return on investment”.
That rather important sounding phrase just means working out how much you get back in profits for every £1 you spend on marketing. In normal businesses, marketing is often thought of as an overhead, but in online business, as in direct mail, your marketing should always bring a return bigger than the investment being made.
To recap, let’s assume you have an opt in box that gives away something of value to your ideal future client or customer. You’ve set everything up right, submitted your site to Google Webmaster Tools, hooked up all your social media profiles to your site, got share buttons on every blog post and you’ve been blogging and working social media like a navvy.
You’ve got to the point where you get 30-50 website visitors a day and about 10% of them are opting in.
Once opted in, on the Thank You page, your new subscribers get offered a great value product at around the £10/ $15 mark. They also get a series of value added follow up emails, which also promotes this offer.
You are hoping that perhaps 10% of them would take you up on that offer.
But now you have realised that 3-5 optins a day is not going to give you any meaningful results. That’s 21-35 optins a week and even 10% would only be 2-3 sales front end sales a week.
Sites like Optimizely say you need 100 visitors to each offer you are testing and at least 25 conversions on each variation before you get any meaningful data, so multiply that by each version you are testing. By that standard, you need to get to 100 optins over a period of time, ideally more, before you know with any certainty what your back end offer converts at.
As I say, it will take 3-4 weeks and you may make 2-3 sales in that time.
You are not even going to cover your advertising costs with that.
Worse, it’s going to take weeks and weeks to find out if your assumptions are true. I hope you are more impatient to build your business than that.
However, you are a pretty clever person and you have another offer ready to go, that you will make after someone has bought your front-end offer, for around £300-500/ $500-800, and you’ll make a profit on your advertising (and more), if you sell even 2-4 of those a month. You are very keen to get to that stage.
This is the way that a serious online business person thinks.
But not necessarily offline business people it appears.
I was talking to an offline business person who is in a deliciously tight niche with thousands of raving fans; it’s a real passion for them. A sub-niche of that niche being a hard to get item with a specific brand name which gets 4000 searches a month on Google.
This business owner repairs these items, sells them second hand, and even better, teaches people how to get the parts and make them too.
He can only fit 2 people in for these workshops at a time, due to size & health and safety restrictions. He’s currently charging £700 for a two day course. Overheads apart from his time are pretty much zero, so he makes £700 a day per workshop. He’s happy to do one of these courses a week but obviously would like a holiday occasionally. Let’s give him 8 weeks off a year, that’s 44 courses a year.
He could increase that price I’m sure, these people are real enthusiasts!
So, if he doubled the price to £1400 per person for a two day workshop, and did those workshops for 44 weeks, he’d make an extra £123,200 a year.
I suggested that he might want to bring in a small camera crew for one of them, that would cost about £2000, and film it, so that he can sell the workshop online. Just say he charged £497 per course with 3 months Facebook group support.
If only 1% of those 4000 a month searching on Google bought the course, that would be 40 sales at £19,880 a month or £238,560 a year.
We are up to £361,760 profit a year now. He could take some more weeks off, do just one course a month perhaps, or even find a bigger venue.
It’s a pretty exciting project all round.
This guy has gone off to do the sums for himself and work on the workshop content.
I really hope he comes back to me.
If you are finding this concept of knowing your business maths inside out helpful, while you wait for my next article, I see that Yaro Starak has written on a similar topic with an excellent post in his Blog Fundamentals mini-series about how much traffic it takes to make money from your blog. Check it out here.
Photo Credit: Sun on Blackboard, by Chad Skeers on Flickr (Used under the Creative Commons License)