Issue #2308
- WEALTHY: When it makes sense to spend more on a marketing effort – and when it doesn’t (Gary Hennerberg)
- HEALTHY: Pour yourself a cup of joe, and enjoy it while you read this (Dr. Jonny Bowden)
- WISE: Steven Kaye on gimmicks
ALSO IN THIS ISSUE:
- How to double your revenues… again and again and again (Michael Masterson)
- YOU may love the look of your website, but that doesn’t really matter (David Cross)
- It’s Fun to Know… about microbots
- Add "pleonasm" to your vocabulary
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"People should make resolutions not to go for gimmicks."
Steven Kaye
7 Steps to More Profitable Marketing Decisions
No matter which medium you choose to market your product, the vendors you deal with are going to try to talk you into spending money on various gimmicks – all under the guise of generating a higher response from prospective customers.
Some of these gimmicks are worth it. Many aren’t. So how do you quantify them to see if they make financial sense?
If you’re marketing online, for example, your copywriter might feel that you need much longer copy to sell your product. But since you’re paying him for it, you need to know if the extra cost is worth the investment.
Likewise, if you’re sending a traditional direct-mail package, your printer might try to upsell you to use more color, upgraded stock, or a fancy envelope.
If you don’t quantify the impact of these costs, you risk throwing away money by overspending. Conversely, you risk getting a reduced response rate by not investing enough.
So today it’s time to learn how to take a few basic steps that will make you smarter as you develop the elements you use to sell your product or service. You’ll evaluate your copy, offers, etc. in a new light when you know exactly what you have to produce in response and sales based on the cost of your marketing effort.
How do you know how much you can spend on marketing? One way is to develop an "Allowable Marketing Cost" model. It’s not as difficult as it might sound.
I’m going to use direct mail as the selling channel in this example, but you can apply the same formula to the costs of e-mail, online, broadcast, magazines, or virtually any other medium. That said, here are the seven steps that will reveal your Allowable Marketing Cost:
Step 1. Begin with the average value of your sale. Let’s say your product or service sells for $100.
Step 2. Calculate every imaginable fixed and variable cost, such as cost of goods, fulfillment, premiums, order processing, and so on. (But don’t include the marketing cost. That comes in Step 6.) Let’s say these costs add up to $50.
Step 3. You need to include overhead as a cost. That includes rent, salaries, etc. You might allocate $10 of your average sale to overhead.
Step 4. Establish a profit objective. It might be, for example, 20 percent of net sales, or $8 per order. ($100 in sales minus $50 in costs minus $10 for overhead = $40. 20 percent of $40 = $8.)
Step 5. Now you can determine your Allowable Marketing Cost by subtracting your costs, overhead, and profit objective from your average sale. In this case, it comes to $32. ($100 minus $50 in costs minus $10 for overhead minus $8 for profit = $32.)
Step 6. Next, you calculate your marketing expenses on a cost per thousand (CPM) basis. Remember, I’m using direct mail as the medium for this example. And I’m figuring a cost of $400 per thousand mailed (40 cents each), inclusive of creative costs, printing, inserting, mailing list rental, and postage. If you are using another medium, use its CPM instead.
Step 7. Now we calculate the response rate required to support all these numbers. When you divide the marketing CPM ($400) by the Allowable Marketing Cost ($32), you learn you must generate 12.5 orders per thousand – a response rate of 1.25 percent – to meet your profit objective of 20 percent (or $8 per order).
A response rate of 1.25 percent means everyone gets paid and your profit objective is reached.
But what if someone suggests you make your letter longer, use more expensive paper, increase the use of color, use an unusual envelope, or take advantage of any one of dozens of ideas to spiff up your mailing and increase cost. And the cost of that idea is an extra $20 per thousand (or an increase to $420).
Using the above formula, you would divide $420 by $32 and discover that the more costly idea will have to deliver 13.125 orders per thousand – a response rate of 1.3125 percent. That doesn’t sound like much extra, does it? It’s just 5 percent. But as any seasoned direct marketer will tell you, getting a 5 percent lift in response isn’t as easy as it may appear.
I’ve learned after nearly 30 years in this business that more color, better paper, and unusual sizes or shapes do sometimes increase response. But my observation is that gimmicks are often used to try to overcome so-so creative ideas. Still, if you can combine an unusual twist on production value with top-notch copy and design, you can lift response more than enough to pay for the extra cost.
Consider these three examples from my personal experience:
* Litho vs. flexo outer-envelope printing
Litho printing is more expensive and needed for certain intricate designs. I have two clients – one in financial services, the other in food – where we’ve tested litho vs. flexo for an outer envelope. The extra cost was about $10 per thousand. And in both cases, the lift in response more than paid for the extra cost. Why? Because the envelopes were visually interesting with strong teaser copy – so I suspect more people opened them. If I can double the number of people who just open my envelope, I double my opportunity for response.
* Two-page vs. four-page letter
I don’t get to test this often, but I was amazed to learn in a test for an insurance marketer that the shorter, less costly, letter pulled better, saving $13 per thousand. A $13 per thousand savings doesn’t sound like much until you realize that we wound up mailing 6 million of these letters a year, saving $78,000 annually, all going to the bottom line.
On the other hand, for this same client, we tested two vs. four pages for a different product directed to a different market. Guess what? The four-page letter lifted response and paid for itself. Like the package mentioned above, we wound up mailing about 6 million of these a year, making the $78,000 additional investment worthwhile for this particular marketing effort.
* Membership cards using paper stock vs. plastic
For an auto club, we tested plastic member cards that were more expensive than cards printed on paper. The response to the plastic card was higher, but, to our disappointment, the paper stock had a more financially favorable acquisition cost per new member. This is an example where a more expensive idea, even with a higher response rate, didn’t equate into a better way to go.
The only way to resolve the question of cost for sure is to test. But doing the math will help you analyze every creative and production decision you have to make.
If you’re a marketer, you must know how to see through gimmicks and recognize break-away sales copy. A good way to learn how to distinguish top-notch copy from average copy is with AWAI’s copywriting programs. (AWAI programs aren’t just for copywriters – they’re for marketers, too.)
After you review your proposed sales copy, determine your Allowable Marketing Cost and use your own "test of reasonableness" to see if it looks like adding an upgraded element to the package will increase response and result in a more favorable cost per order. Do this every time, and you’ll make more profitable decisions.
[Ed. Note: Gary Hennerberg (hennerberg.com) is a regular contributor to AWAI's copywriting programs. He writes sales-generating copy that reaches nearly 40 million households annually. His book on marketing analytics, Direct Marketing Quantified: The Knowledge Is in the Numbers, is available from Target Marketing Publishing.]
Online Profits in Just DAYS…with a Business You Can Sell for Millions Later?
Buck Rizvi has taught 3-day seminars – at $10,000 a person – teaching everyone from doctors and small business owners to retirees and recent college grads how to start a business and have it profitable in days… and even sell it for a multi-million dollar price tag later.
You will get much of the same information for a tiny fraction of the cost at Early to Rise’s Profits in Paradise conference in Orlando this April.
And that’s just ONE of the things you will learn at our Profits in Paradise conference this April. For more details, click here.
A Fundamental Fact of Entrepreneurial Growth
Getting your business started is a matter of breaking into an existing market by selling some new product effectively. Once you have figured out how to do that, what you do is keep on keeping on, making adjustments as you go, until the market gets tired of your product.
At this point, sales are slowing and you know that you must do something different. But what could that something be?
Can you stimulate further growth by changing your accounting? Or your database management? Or your customer service or other aspects of your operation?
Maybe a tiny bit, but not significantly.
Can you create sales by finding a new market for your product? In theory, yes. But in practice, probably not. You have gotten your business to this point by selling your product very hard, using every marketing trick in the book and buying market entry wherever you could find it.
There’s only one big opportunity for growth at this stage of business development: Start selling more new products.
[Ed. Note: The above was adapted from Michael Masterson's latest book, Ready, Fire, Aim: Zero to $100 Million in No Time Flat, published with permission of John Wiley & Sons. In the book - which has hit The New York Times business best-seller list - Michael shows how veteran and rookie entrepreneurs alike can take their businesses to the next level. You'll learn how to identify and solve the problems that crop up during each stage of a company's growth... and how to take advantage of profit opportunities along the way. Order your copy of Ready, Fire, Aim now.]
Praise for Ready, Fire, Aim : "An excellent guidance and reference to where I want to be in my business."
"Ready, Fire, Aim is a fascinating, intellectual, and practical book! I just started reading it last night, and find it to be an excellent guidance and reference to where I want to be in my business at this moment of uncertainty."
- Elisa I. Gruszynski
Cupertino , CA
If You Really Must Have a Design, (Im)Prove It
By David Cross
You may feel very strongly that your website should look a certain way. But the fact is, it doesn’t matter what you think. It doesn’t matter what your designer thinks, either. And it doesn’t matter what your webmaster thinks. What matters is what your customers think. And the best way to find out what they think of the design of any aspect of your website is to test it.
Google has an excellent, totally underutilized, free tool called Google Website Optimizer. This software allows you to continually test different combinations of your site’s content – both text and images – to determine how small changes might increase the number of people buying from you.
Whether you use this tool or some other method to test your design elements, DO test them. Testing gives you an objective measurement of how your customers think. Once you know what works – and doesn’t work – with them, you can mix and match to improve the performance of your website and online marketing campaigns.
[Ed. Note: David Cross is Senior Internet Consultant to Agora Inc. in Baltimore . You can meet all your marketing goals - and achieve all your personal, social, financial, and business dreams - with the help of ETR's Total Success Achievement program . Learn more by clicking here.]
Coffee Ain’t So Bad After All!
"People who already drink a lot of coffee don’t have to feel ‘guilty’ as long as coffee does not affect their daily life." So says Harvard researcher Frank Hu, MD. In fact, he adds that folks with a coffee "habit" may actually benefit from it in the long run.
At least six research reports show that people who drink coffee are up to 80 percent less likely to develop Parkinson’s, have a 25 percent drop in their risk for colon cancer, an 80 percent drop in their risk for liver cirrhosis, and an almost 50 percent lower risk for gallstones. Not only that, research from Harvard shows that drinking six or more cups of java cuts the risk for Type II diabetes by 54 percent for men and 30 percent for women.
Coffee actually provides more than just the legendary caffeine jolt. It’s a big source of antioxidants, containing such compounds as chlorogenic acid and tocopherols and even minerals like magnesium. The trick is not to over-consume it. For some people, excess coffee can increase heartbeat and jitters. However, the increase in blood pressure that many worry about is largely temporary.
Before you stock up on coffee, keep in mind that unless you drink it black, you could be drinking a lot of extra sugar with your cup of joe. And, as Craig Ballantyne says, watch out for "mega-coffees" that pack in extra caffeine.
One more word of advice: Don’t drink coffee after about 4:00 in the afternoon. The caffeine stays in your system for a long time and can interfere with the length and quality of your sleep.
[Ed. Note: Dr. Jonny Bowden is a nationally known expert on weight loss, nutrition, and health. He's the author of the new book The Most Effective Natural Cures on Earth. For more information, go to www.jonnybowden.com. To read more of his articles on healthy living in ETR's natural health e-letter, click here.]
It’s Fun to Know: About Microbots
Researchers at the Korea Institute of Technology are designing six-legged robots tiny enough to travel through blood vessels. The goal is to get these microbots to blocked arteries, where they can release medicine to clear them.
The scientists believe they will be ready for human testing in about 12 years.
(Source: Wired )
The Only Three Ways to Grow a Business
Did you know that there are only three ways to grow a business?
- Increase the number of customers.
- Increase the average transaction value.
- Increase the frequency of repurchase.
Find a way to maximize each one, and your business will experience an astonishing rate of growth.
In his "9 Pillars of Business Growth" program, acclaimed consultant Jay Abraham outlines hundreds of proven, frequently unrecognized, and almost totally underutilized ways to grow these three key areas of your business. If you own a business (or would like to), be sure to take a look at Jay’s program.
- Patrick Coffey
Word to the Wise: Pleonasm
"Pleonasm" (PLEE-uh-naz-um) – from the Greek for "greater" – is the use of more words than necessary to express an idea.
Example (as used by Paula Cocozza in The Independent): "[He] uses many words where few would do, as if pleonasm were a way of wringing every possibility out of the material he has, and stretching sentences a form of spreading the word."
[Ed. Note: Become a more persuasive writer and speaker ... build your self-confidence and intellect ... increase your attractiveness to others ... just by spending 10 VERY enjoyable minutes a day with ETR's new Words to the Wise CD Library.]
Copyright ETR, LLC, 2008
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