People start a business for a variety of reasons. But ultimately, they tend to get involved in a business due to a passion or belief in something. And most of the time, they have absolutely no idea where to begin with marketing.
They often let their marketing depend on how much money they feel comfortable risking, believing that for the most part it will not pay off, but hoping beyond hope that they will stumble upon the one magic bullet that rockets their business to success.
Well, I am sorry to say, there is no magic bullet, and this type of thinking is one of the leading causes of business failure.
So, in an attempt to offer some guidance, I shall present to you the marketing formula. It is a simple mathematical formula that can shed some light onto how much marketing you should be doing in your business.
For this demonstration, I am going to use a hypothetical widget company. I am going to use generic, round numbers for ease of demonstrating this formula. Your results will be different.
Please keep in mind that I am simplifying everything here for ease of understanding. There is really so much to this question that a simple blog post, or even a whole series, can only scratch the surface.
First off, it is important to know your numbers. If you are starting from nothing, then you may have to do some guesswork, and some trial and error, before you can fully apply this formula.
To begin with, you need to determine what your overall costs are. Different businesses will have different costs. But let’s assume you know your costs, and determine that your widget business has to make a gross income of $120,000 a year in order for you to meet your financial obligations and support your chosen lifestyle.
Furthermore, you know that your average sales transaction for your widgets has a gross profit of $240. So, in order to make $120,000, your business has to make 500 sales per year. 500 x $240 = $120,000
This is kind of where the line separating marketing and sales gets a little blurred. Let’s say you know that each presentation has a closing percentage of 10%. Such a presentation could take the form of a live demo, a webinar, or even a well-crafted direct response letter. In any case, you average one sale for every ten such demonstrations you give. So, in order to get 500 sales, you have to give 5,000 presentations in a year. 10% of 5,000 = 500
Let’s say that you also have determined that out of your marketing and advertising initiatives, you get an average of a 4% response rate. (Please note that this is making a broad assumption that the widget company is properly tracking the response to marketing and that they know the average cost of acquiring a lead, which was built into determining the gross profit on each sale.)
So, if you get a 4% response of people who see the marketing that allow a presentation, that means you have to actually market to 125,000 people, which breaks down to around 10,417 people per month.
So, the overall equation looks like this-
Income Goal / Average Sale = Number of Sales Needed
Number of Sales Needed x Closing Percentage = Number of Leads Needed
Number of Leads Needed x Response Percentage = Amount of Marketing Needed
If you do the math and think “Holy cow! I can’t afford to market to 10,000 people per month!” then you have to make some changes. Here are a few things you can do.
Increase your response rate to your marketing.
If you start getting more people letting you present to them, you will then be able to make more sales. You can increase this by improving your copywriting, come up with a stronger offer to entice people, or trying new markets.
Increase your closing ratio.
You don’t have to do more presentations if you get better results from the ones you do. Maybe get some sales training, hire a professional presenter, or be more aggressive with asking for the sale and following up.
Increase the amount of each transaction.
If you start making more with each sale, you will have to do fewer presentations to get the same results. You can improve this by upselling, cross-promoting, or even just raising your prices.
This formula will not solve your problems, but it gives you a foundation to work from. Numbers don’t lie, and if you don’t know where you stand in regards to this equation, you probably will never be successful.
If this all seems overwhelming, don’t panic. This is the very thing that I help people with. Shoot me an e-mail and set up an appointment. The first one is always free, so I can see if I am a good fit for you.
After that, I can help you. You may balk at the thought of paying me $500 to solve a problem, but if I am able to help you generate 100 more leads each month which result in an extra $2400 in business, then suddenly it sounds like a no-brainer.
And I offer a money-back guarantee. So really, what do you have to lose?
