Article 1: Do You Market By The Numbers?
Here's an article my good friend Dave Cones wrote a couple of years ago as it relates to marketing. He was doing a joint venture with another web site and I am including it as it was published. Enjoy!
To Your Success,
Stephan Bourget, Publisher
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The gold rush of this century is booming. People are rushing to the Internet to get their piece of the pie. The Internet is the place to be - Right? With the big fall out of many dotcom companies, it could be that their marketing approaches may be missing a few important items. One of them is running their marketing by the numbers.
Running them by the numbers? What does that mean? If you want to succeed in business, you need to know the facts about what is working and what is not working. The common approach for most Internet and non-Internet marketers is to throw money at something to see if it will stick. If it doesn't, they move on to the next opportunity. Sound familiar?
The fact is marketing any product is possible if you know the numbers behind your marketing approach. Now before you begin to yawn too big, we will show you some very important simple calculations that can make a big difference in your marketing success.
To be successful in marketing your business online, you need to be able to calculate three numbers. They are the
· cost per visitor
· sales conversion rate
· dollars earned per visitor.
With these three numbers, you will be able to determine the effectiveness of any marketing campaign.
How do you determine these? Let's take them one at a time.
Cost per visitor is determined by the cost of a marketing campaign divided by the number of visitors the campaign sends to your web site. Let's take a look at two different approaches and calculate the cost per visitor. This example will show you a common error made by most Internet marketers. They assume that buying a lower cost per name they advertise is more cost effective.
Many marketers want to market to as many people as possible for the lowest cost. Now this is a good thing from the standpoint of budgeting. However, many marketers run their whole marketing campaign budget strictly off the cost per name basis which will usually put them out of business.
We have tested many types of lists on the Internet over the 6+ years we have been marketing. So we know the typical results that one can expect from various types of lists. Many marketers will consider using "opt-in" lists which are really nothing more than a list of email addresses gleaned off of web sites via a software program. They advertise their lists as targeted opt-in lists and sell them for ridiculously low prices (under one cent a name). They will even send out the emails for you from their bulk email server in some foreign country. They may charge something like $99 for 300,000 people. They advertise their lists via hype and greed, claiming that if you have a 0.1 percent response how much money you can make. The reality is that these lists have a very low response rate of 1 to 5 out of 100,000 (0.001 to 0.005 percent response rate).
Since many of these low price lists are emailed via a foreign bulk email service, you will get about 10 to 20 or more complaints of spam to your ISP. So make sure you have money budgeted for the shut down of your site while you attempt to find someone willing to host your domain. Also your domain name will probably get black listed on the Spam Cop sites on the web. We do not want you to find this out the hard way, so we are telling you all the facts up front. Costs for spam complaints could be as high as $500 per email sent. Some states have a $50,000 limit on the penalty. So if you are operating your marketing budget on the cost per name basis, make sure you factor in potential unsolicited email complaint costs into your budget.
On the other hand, there are TRUE targeted opt-in lists. These lists cost money and time to develop. The company that developed the lists has documented the people joining the lists and the people are familiar with the company sending them the emails. They can use their ISP service in any country because the people on the lists welcome their email. It may have cost the person who developed the list up to a dollar or more per name. So when they have a list of 100,000, it could have taken them a year or two and an investment of up to $100,000 to build this list. These types of lists are much more responsive. Typical response rates can vary between 3% and 10% depending on the list and the ad copy.
Now let's look at the cost per visitor for each list using the typical response rates. In the first list the cost per email sent is 0.0033 cents. That is determined by dividing $99.00 by 300,000. But that is not the important number. The one you want to know is the cost per visitor. Using the typical response rate of 1 to 5 per 100,000, you would have between 3 and 15 people visit the site. This would give you a cost per visitor of $6.60 to $33.00. This is determined by dividing $99.00 by 3 and 15.
The TRUE targeted opt-in list would give you between 30 and 100 visitors. If we calculate the cost per email sent, it is 14.9 cents. But the more important number is the cost per visitor. This number is between $1.49 and $4.97.
When we look at the cost per visitor, you will see that the TRUE targeted opt-in list is the best approach and will give you a better return on your investment. In fact, choosing the bigger, cheaper list costs you more in the long run. That is why many people will do an advertisement to these cheap lists and say that marketing on the Internet does not work. The reality is they used the more costly, less targeted list.
The second number you need to calculate is the sales conversion rate. This is determined by knowing how many visitors it takes to your site to get one sale. For example, if you have 1,000 visitors to your site and you get 10 sales, you know that your site is converting 1 out of 100 visitors into customers. (Sales conversion rate is the number of sales divided by the number of visitors.)
The sales conversion rate is a VERY important number to know. By knowing this, you can determine the success or failure of a marketing campaign. Here's why.
Once you know your sales conversion rate, you can.
1) Know how much you can afford to pay for advertising.
2) Know if a change to your web site is good or bad.
The sales conversion rate will let you calculate the dollars earned per visitor (the third vital number you need to know). Let's say you sell a product for $100 dollars. Your sales conversion rate is 1 out of 25. Now you divide $100 by 25 visitors to see that you will earn $4.00 per visitor to your site. Once you have determined this number, you know how much you can afford to pay for your marketing campaigns.
If you know that you earn $4 for every visitor to your site, how much can you afford to pay per visitor to your web site? $4 or less. Now you know what to pay for marketing campaigns. Let's say you have been approached by someone who has a TRUE opt-in list of 100,000. You can test a small mailing of 1,000 or 2,000 and see how many visitors it generates to your site. If you find that your cost per visitor is under $4, you would probably want to send your ad to the whole list. Do you see the power and control you have by knowing these numbers?
The other thing you can determine is how changes to your web site have impacted your sales. Let's use the same example of $4 per visitor. You want to test to see if revising your order page will impact your sales. You set up a new order page and then collect your data. You find out that your conversion rate is now 1 in 20 which translates to $5 per visitor. You know that the change was a good one.
On the other hand, if you make a change and see that your sales conversion rate drops to 1 out of 40, you know that the change was a bad one and you revise the order page back to the original one.
Another thing that having these numbers can do, is help you determine the success of your ad copy in your emails sent. If you want to test headlines or ad copy, you could send two different ads to the same list. (We are assuming a large list where you can run small tests of 1,000.) If one ad generates 50 visitors and the other ad generates 20 visitors, you know which one pulls the best. In fact, you have the dollars per visitor calculated at $4. The first ad would generate $200 per thousand and the second one $80 per thousand.
Many people do not want to take the time to evaluate these numbers. In fact, many Internet marketers are not really marketers. They are playing a numbers game similar to the lottery. They want to buy as many tickets for as cheap as they can. They hope that by having 300,000 tickets, they will get that one visitor who will make a difference in their business. Just as most people lose money in the lottery, the same thing happens to people who look for cheap ways to market their business without knowing their numbers.
To be successful, you need to throw off the lottery mentality and become a TRUE Internet marketer. Marketers know their numbers. They know when their campaign has been successful. They know how much they can spend on various types of advertising and make a profit.
Now the question for you is this - Which approach do you want to take? One guarantees failure while the other leads to success. A friend of ours has a statement which applies here.
"The only thing more expensive than education is ignorance."
The choice is yours.
Do you want to be a marketer or play the lottery?
Until then,
Dave Cones & Pat Rice
ComNetOrgBiz.com - A Service of CommissionMarketing
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