Marketing : Targeting Customers Cost Effectively

This presentation will show you exactly how to create a cost-effective marketing plan. Some of the topics covered include:

First Steps in Cost-Effective Marketing

Most businesses will fail, barely get by, or suffer from low profit margins. The ones who prosper will be those who successfully market and advertise their businesses.

The key word above is “successfully.” The reason why is because simply making the decision to market is not enough. A small business owner cannot expect results by doing what a major corporation does.

The first step in all marketing campaigns involves crunching the numbers to find:

  • How to determine and reach your profit goals
  • How to calculate how much a customer is worth
  • How to calculate a responsible advertising budget
  • How to establish long term impact

Estimating Customer Worth

The first step in creating your marketing strategy is first deciding how much a customer is worth to you. This is a quite simple process, that will also tell you how well your business is operating. Answer the following questions:

  • What does an average customer spend per purchase
  • What is the net profit on an average purchase
  • How long will the customer use your business
  • How many purchases will they make during period of use
  • How many referrals do customers tend to make
  • How many customers do you need to replace those who leave
  • What have you spent on advertising to gain customers

Customer Worth Formula

Number of Referrals

Purchases During Use *

Worth of Referrals =

Purchases During Use +

Net Profit =

Net Profit Per Purchase *

New Customer Worth =

Growth Objective to Gain Equity Position

Now it is time to define a growth object to gain equity position. Growth Objective is simply, the number of customers needed to reach profit goals. An Equity Position is met when your target market thinks of your business first when looking to buy those products you offer. Answer the following questions:

Average Ticket =
(Gross Sales / No. Sales Per Year)

Closing Percentage=
(Sales Opportunities / No. of Sales)

Avg. Floor Count=
(No. Sales / Closing Percentage)

# of Competitors

Competitors Floor Count

Total Prospects from Competitors

Projected Gross Sales=
(Growth % * Gross Sales)

Additional Sales=
(Profit Goal – (Est. Profit / Avg. Ticket))

Additional Prospect / Yr. =
(Add. Sales / Closing %)

Calculating a Cost-Effective Ad Budget

At this point we have not only found Customer Worth and how to reach Growth Objective, but also we have an idea of what factors are important in gaining profit.If you look closely you’ll notice how important Closing Percentage is, and may be wondering how to up that number? I will be covering the writing of effective advertising copy later.

Now let us get back to number crunching. We now must find out what a cost effective ad budget looks like. Most ad companies will tell you that it should be around 5 to 6 percent. I however believe companies are different and instead we will base our budget on markup and location.

We will look at markup, because advertising must work harder if your prices are higher. Put simply, the price conscious public won’t buy a more expensive product unless they see some added value in doing so. Advertising will give them that added value. 80% or more of what you sell is marketing, not the product itself. So, if people are buying marketing off of you, you best sell it!

Also location is important, because a business paying a great deal for prime customer traffic need not spend as much for advertising as one that is harder to find.

Ad Budget

Gross Profit

Advertising % *

Avg. Markup   *

Occupancy Cost –

Ad Budget

Analyzing the Numbers

Now we have found all of the below:

  • Worth of new customer
  • Total customers available from competitors
  • Additional customers needed per day to reach profit goals

It’s now time to bring these numbers together. The two most important numbers above are, “customers available from competitors”, and “additional customers needed.” Make sure first there are enough customers available to reach goals. If not the goal you set is too high and should be adjusted between 10 to 30 percent growth relative to your industry.

If your profit goals are in line then it is time to put your ad dollars to work. This will be done by choosing the proper mediums. You should use mediums that will allow you to build a consistent, aggressive and yet cost effective ad campaign.

I hope this article helps you to cost effectively market your business. If you have any questions ask them in the comments below

Till next time…


2 Responses to “Marketing : Targeting Customers Cost Effectively”

  1. Howdy. Initial I would like to say that I genuinely like your web site, just identified it the past week but I’ve been following it increasingly since then.

    I seem to be to acknowledge with most of your respective thinkings and beliefs and this submit is no exception. I fully

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  2. Ty Richardson says:

    Is there a way you can place your customer worth formulas on one line or in an excel. It’s kind of hard to read the logic or string text in it’s current form (paragraph breaks).

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