When you read this secret it will sound pretty obvious… it is. There are exceptions but if you are just starting stick to this rule and you are guaranteed to make money from your advertising.
“Never Pay More For Your Advertising Than You Will Make”
Common sense… sure it is, but you would be amazed at how many people don’t follow this rule then spend endless amounts of money on advertising programs that are obvious money losers or over bid on PPC keywords.
In many cases they just do not know what information to look for or how to tell if they are making money on their ads. Sometimes it is laziness, other times they just have not had enough experience to realize how much money they could make or lose.
Some advertising can be difficult to measure such as a yellow page ad. But with the Internet you can automatically track your advertising profitability.
The one exception to this rule is that you need to test and optimize your product offering so that you can:
1) Make sure that your product offering is profitable.
2) Avoid wasting money on a losing product.
3) Maximize your profits.
To do this you should spend a little bit of money on testing. This way you know what profit you can expect.
This next part may be a little analytical but please stick with me. You will learn a simple to use measure that will be your guide to help you make more money and cut your risk of losing money. This is Essential For Your Long Term Success.
Your guide is to know your Websites Visitor Value. If you pay more in advertising for each visitor than your visitor value you will be losing money. Knowing your Visitor Value is a simple measure you can use to determine how much you should pay for advertising and how effective your website is at producing profits.
Your Visitor Value is the amount of Gross Profit that you make on average for every visitor that comes to your site.
* Calculate Your Visitor Value *
To calculate your Visitor Value you take your Total Gross Profit and divide it by your Total Number of Visitors for a given time period, such as a month.
So lets say you have 10,000 visitors during the month and you have a Gross Profit of $4,500. $4,500 / 10,000 = $0.45 Visitor Value. So on average each visitor results in $0.45 in Gross Profit.
You should be able to get the “Number of Visitors” to your site from your website activity report provided by your web hosting service. If your hosting service does not supply this information switch, there are plenty of low cost hosting services that do.
Your Total Gross Profit is your Total Sales minus the Total Cost to Purchase or make your product(s). Lets say your Total Sales were $9,000 and the total cost of your products was $4,500. $9,000 – $4,500 = $4,500 Total Gross Profit.
Ok great, but how do I use this information to make money?
Here is an example.
Lets say that you want to advertise with one of the PPC Search Engines. The first thing you should do is determine the maximum amount to bid on a keyword to give you your desired profit.
In this example, you know that your Visitor Value is $0.45 this tells us the if you bid $0.45 on a keyword you will have $0 in profit after spending $0.45 advertising. Not Good. So to make money your maximum bid should be less than $0.45.
* Determine Your Desired Profit *
Your desired profit should be the amount below which you do not believe that it is worth your time and money to invest in marketing and advertising the product.
There may be a reason why you may consciously decide to breakeven or loss money on a product. Sometimes entry products will lose money but the business knows that it will more than make-up the loss with it’s back end products. You should make this an exception and only if you have a clear process of up selling and are measuring your customers overall value.
Lets say you have decided that you must have $0.20 in profit for every visitor.
* Calculate Your Maximum Advertising Cost *
You calculate your maximum advertising cost as follows:
Gross Profit – Desired Profit = Maximum Advertising Cost $0.45 – $0.20 = $0.25 Maximum Advertising Cost.
In this example if you spend $100 on advertising you would get 400 visitors ($100 X $0.25 = 400) and make $80 in Net Profit (400 X $0.20 = $80).
Now it’s simple. Never Pay More Than $0.25 per Visitor to always earn your desired profit.
You bid more, you make less… you bid more than $0.45 and you lose money. If you want to make more money increase your visitor value or lower your advertising cost.
You can use this approach for all forms of advertising. To really make money you need to measure and track where your traffic came from, which sales resulted from which traffic, which ads worked and which ones did not.
This is where testing and tracking your advertising comes into play. When you know which specific ads, media and offers are working (putting money in your pocket) you can invest more on the winners and drop the losers.
Regularly check your websites visitor value to determine if you are becoming more effective at producing profits with each visitor. Your objective should be to continually increase your visitor value. If you do this you will continually put more money in your pocket.
Now you know the secret to making money with advertising.
1) Know what each visitor is worth (Visitor Value)
2) Never spend more on your advertising than you expect to make from the visitors that result from your advertising.
When you have a winning advertising formula, repeat it over and over again. Then Each time you advertise you will put money in your pocket. It’s like printing money. Give it a try.
Jeffrey D Jordan, Copyright 2002
Jeffrey Jordan, President of Net Marketing Results. He has 20 years experience enhancing profits for Fortune 500 companies to small businesses providing expertise in marketing, systems integration, manufacturing, software, e-commerce and online business.
jdj@netmarketingresults.com
http://www.netmarketingresults.com/
