Chuck Blakeman

It is difficult to track whether the money we spend on passive promotional techniques such as advertising and direct marketing actually results in revenue, let alone profit. So advertisers and direct marketers focus on tracking “activity”, which doesn’t necessarily have anything to do with profit.

A few weeks ago I had an SEO company try to sell me on spending $400 per month by showing me higher click-through activity after clients had begun using their services. The problem is that activity doesn’t equate with profit.

A real estate broker had developed a software system that generated lots of leads from the internet – activity. The broker found though, that they spent most of their time chasing these leads with almost no effect. He ended up making a business out of selling all these leads to other real estate agents so they could waste their time chasing them. Activity may make us feel good, but it does not equate with results or profit.

I met a plumber who was spending $40,000 per year on the Yellow Pages and was very proud that he could track $400,000 in annual revenue directly back to that advertising. But when we analyzed it closely, we found that his profit on $400k was $32K. He was losing $8k a year for the privilege of doing $400k worth of work.

We are also told that we should spend money to “brand” ourselves, which lets advertisers off the hook for any kind of measurable result at all. It takes an enormous amount of money to make any kind of dent for branding or recognition advertising. Most small companies would be wasting their money trying.

What should we measure?

1. Go back and look at every client over the last year and ask where they came from. If you don’t track this kind of information, start. It is the most valuable marketing information you will get, and it’s free.

One local retailer found that the majority of customers came from shoppers already in the area. The problem was the store couldn’t be seen from the road and all these were simply from the parking lot. They got someone to stand out by the road with a swivel sign and increased their traffic even more. Passive advertising wouldn’t have been nearly so cost-effective.

If you’re not a drive-by retailer, you’ll find the majority of your clients come from referrals given to you by other clients or people you know. That should radically change they way you do marketing (spend Time, not Money, and get to know your clients and friends better.)

2. If you still feel advertising and direct marketing is a good spend, always have an ROI (return-on-investment) vehicle as part of the ad – 10% off with this coupon, or buy 3, get one free with this coupon, etc. – to help you with tracking. If you can’t always include such a response vehicle, fall back on #1 above to make sure you’re spending your money wisely. One service provider client of ours knows to the dollar how much business they get from the four different advertising mediums they use, and they adjust their spend accordingly every quarter.

In short, stop measuring ACTIVITY as if that justifies your advertising or marketing expenditure. If you can’t measure PROFIT related to EXPENSE, why would you make the expense?

It’s amazing how business owners, who would never spend $5,000 at the black jack tables, are more than willing to dump $5,000 into the black hole of advertising on the basis of the “Random Hope” strategy – “I sure hope this works.”

Stop marketing expense risks, know your numbers, and tie your expenditures to PROFIT, not to ACTIVITY. You’ll go home with more money.