It may seem like the purpose of every marketing campaign is to make a profit. However, many marketers and business owners actually lose money on acquiring new customers.
There are three basic scenarios when launching a marketing campaign. You need to determine which scenario fits your business best.
- Do you want to bring your customers in at break-even? This means for every dollar spent, you get that dollar back but no more. For example, if you spend $1,000 and you make $1,000 with your marketing efforts while acquiring new customers, you have done so at break-even.
- Are you willing to take a loss up front in order to obtain more customers that can make you more money on the back end? For example, if you spend $1,000 and you make $800 while acquiring new customers, you are taking an initial loss. But you can continue to sell more – and more expensive – products to those new customers, making additional money on the back end.
- Is your goal to make money on the initial sale? For example, if you spend $1,000 and you make $1,250 with your marketing efforts while acquiring new customers, you have done so at a profit.
The chart below is an example of a basic breakeven forecast:
|Projected response rate||1%|
|Average unit of sale||$100|
|Cost of goods||10%|
|Cost of goods (less)||$9,500|
|Projected promo costs||$85,500|
|Net profit per channel||$0.00|
This will be very important when determining your marketing channels (e.g., endorsed e-mail, banner ads, PPC ads, direct mail, etc.), as well as your media plan.
Remember – your goal does not have to be the same for each channel. You may strive to make money on many of your online channels, while you’re willing to take a loss on your direct-mail campaigns because of the associated lifetime value of the new customers you bring in.[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]