11/ 11/ 2005
by Jeffrey Moses
Every small-business owner experiences some degree of uncertainty when allocating advertising funds. The need for advertising is a no-brainer, but it brings up questions: Which media will give me the best return? How often should I advertise? How large should my ads be? What should my ads say? Which headline is the best?
Too often, small companies just wing it, placing ads here and there in hopes of reaching the eyes and ears of likely customers. Unfortunately, these companies often continue with their advertising without knowing exactly how many customers each ad or series of ads brings in.
There is one way to make sure that every advertising dollar generates the maximum return: Design your advertising so that you can determine how much profit each ad dollar generates. This may sound simplistic, but it is probably the single most important marketing activity for small companies.
The mechanics of calculating profit from ad dollars is simple. All you do is devise a way to calculate the revenue from a specific ad or series of ads, then subtract the cost of the ads. This figure is, really, gross profit because it does not include additional costs for salaries, overhead, etc.
Direct response companies live and die by this formula. They build a specific code into each ad that allows them to determine precisely how much money it generates. This code can take the form of a unique number on a coupon, a specific extension number for customers to ask when calling in a telephone order or a specific post office box for mail-in orders. Using a unique tracking code for each ad allows you to allocate all incoming revenue to specific ads. You can then easily calculate the gross profit by subtracting the cost of the ad from the total revenue it generated.
This allows direct response companies to know, for instance, how much revenue comes from ads in a certain magazine or newspaper (with different magazines allotted different codes) or even to know how much individual ads within a magazine generate.
Coding each ad allows direct response companies not only to test for major indications, such as which magazines pull the most response, but also details, such as which headline pulls the most response, which ad text works best, which size generates the most response and which photograph attracts readers. Using codes, companies can test ads, headlines, photos and magazines––and determine a scientific way of generating the greatest profit.
Retail advertising
Retail stores and service organizations of all types can use this principle to help determine which of their ads are most compelling. Most small companies use a number of advertising vehicles: newspapers, radio, television, flyers, direct-mail coupons to name a few. Using the principles discussed above, you can place codes in each of these to determine how much money each type of ad generates.
Since customers for most retail stores often just show up, it may be difficult to calculate the exact revenue from a specific ad. Even so, you can use codes to direct customers to different phone numbers or extension numbers when calling. You should always code discount coupons so you can know which magazine or periodical they appeared in (and which size of ad or headline works the best).
Whenever a new customer comes into the store, one of your employees should ask how the person heard of you. This response may not be exact because people often don’t remember. But through time, it will yield some accuracy.
This technique should be applied in all advertising. Without it, you’ll be using a shotgun approach and will never really be certain about how effectively you are using your ad dollars.
