Apr
21
Should You Advertise?
You’ve got a little bit of money. Not a lot, sure, but a little. And you know you should be doing more to get people in the door. You don’t relish the idea of hand selling every single buyer. Should you advertise?
Here are some things to think of:
What is the lifetime value of a client or customer?
When people become your client, how much money do they send you now? How much money do they send you over the course of a year? Over the course of their lifetime with you?
This applies for both product and service businesses. If you’re a designer and the average new job gets you $1500 and subsequent ones from the same customer tend to run in the region of $1000, your customer is worth $2500. Unless…
Are you good at your job?
Good product and service providers get a lot of their business by referral. I like you, I tell all of my friends about you. How much of your business comes from word of mouth? If every client you get tends to send three more at around the same value, your $2500 customer just became a $10,000 customer. Not every time, but enough.
How good is your ad?
If you’ve done your homework and have created a compelling ad using sound copywriting and design techniques, you’re going to have a whole lot better chance of success. Don’t fall into the 1950s Ad Man trap, thinking that by simply showing up, the people will start coming. They won’t. I had a banner ad on one website and one of my fellow advertisers wrote me an email asking if I was getting a return on investment. Over the course of a month I got around 1000 new visitors from the ad. He’d gotten 46. Your ad matters.
Is the market right?
If you come to me and you want to run a banner ad on IttyBiz for Cheez Doodles, you won’t necessarily flop, but it’s likely. If you want to run an ad for graphic design or productivity systems or invoicing tools, your odds of success go way up. Either make sure the place you’re advertising has a targeted audience or an audience so big that it doesn’t matter.
Can you commit?
If your price point is high or your sales cycle is long, you have to stick it out and try your ad for a while. You cannot get relevant statistics from too short an ad run. This is not the time to say you’ll run an ad for a month. It takes people longer than a month to decide to hire you and by then, your ad is gone.
(The rules here are a little different for pay per click advertising but if you’re a normal ittybiz owner, you probably shouldn’t be running a PPC campaign anyway.)
Can you watch the money burn?
Here’s the biggie. If you can’t afford to burn the money in front of your eyes, you shouldn’t be advertising. Sometimes it works and sometimes it needs tweaks and sometimes you misjudge the market. For God’s sake, don’t advertise somewhere tomorrow thinking that you’ll need the return by the end of the month. Bad, bad, bad.
The Bottom Line: Metrics, People
Service providers: Let’s say lifetime value of a client, including referrals, is $2000. And a year’s worth of advertising is going to cost you $1500. And your ad and offering are good enough that it’s pretty damn likely you’ll score at least one additional client from the spot. And the $125 a month isn’t going to leave you homeless. Then, yeah. Can’t hurt to try it.
Product providers: Let’s say lifetime value of a customer, including referrals, is $200. The ad still costs $1500 for the year and it won’t make you broke. And your product has a much shorter sales cycle than a service would, so you’ll get more impulse buys. And you’re advertising to the right group of people. You need to score 8 new customers over the course of a YEAR to make the ad worth it.
More Bottom Lines
If it won’t render you homeless…
If your offering is pretty good…
If your ad is pretty good…
If the audience is pretty good…
If you won’t freak out and quit after a month…
Then, yeah. Advertise. You may as well.
Seriously. The Real Bottom Line
Don’t suck too badly, don’t spend too much, and you should be fine.
“If your price point is high or your sales cycle is long, you have to stick it out and try your ad for a while. You cannot get relevant statistics from too short an ad run. This is not the time to say you’ll run an ad for a month. It takes people longer than a month to decide to hire you and by then, your ad is gone.”
So what exactly is your “sales cycle”? Is it the time it takes a new prospect from the point of discovering you to actually buy your product or service? Or is it something else?
And if a month is too short, what is a reasonable amount of time? Six months?
By the way, good post! I’ve often wondered about when advertising makes sense, but I’ve never seen it explained like this.
About fucking time you wrote something that tells people to advertise. :) I see so many people looking for work and business who totally negate advertising because they see it as a cost, not a potential return.
It’s a SMART investment. Quit worrying about losing money, people.
Hey Avonelle,
Good questions, and I’m glad you liked it. The sales cycle can be defined a number of ways, but basically, it’s just what you said it was. Some people say it’s from first contact to sale, some people say it’s from first consideration to sale. But, yeah. What you said. In your case, you’re not an impulse buy, and unless somebody was specifically looking for their service, they wouldn’t meet you today and hire you tomorrow.
And, yeah. Six months should do it. A year is good too. All good. :)
@ James — Nice to see you, Sir Chartrand. Yeah. Always with the cost complaints. WTF? If you lose money on advertising, you’re not running the right ads. Yeah, it takes time to tweak. No, you’re not going to nail it out of the gate. But if you’re consistently in the red, you’re doing it wrong. Don’t blame the concept.
A pleasure to be hear, Queen Dunford, and I’m honored to be in your royal court.
You know what gets me? “I tried the Yellow Pages… cost me a fortune and got me nothing. Advertising doesn’t work!” Cost analysis and also placement analysis on potential returns is important.
AND. Then there’s this one: “How can you know this will pay off? How can you spend money without KNOWING you’ll get it back? You might lose it all!”
Yes. And the sky might fall in tomorrow, so we’d all best stay inside and never risk going out to enjoy the day.
@Naomi – thanks for answering my questions.
Another thing I worry about is the reverse – too much response. In my case I really only want to add 1 or 2 new customers per year, and my current marketing efforts result in very few tire kickers wasting my time with fruitless bids. But if my advertising resulted in 50 responses and 5 sales, I’d be buried by the sales process!
Yes, that would be a good problem to have, and yes, I could then potentially outsource some of my admin stuff. But really, the bulk of my work is programming – it is what I love and what I do. And I’m not interested in subcontracting and managing others. So there is a tiny bit of fear in me that I could get totally slammed and be overwhelmed and do a crappy job by all my customers.
But I suspect that the likelihood of that kind of problem is really low.
@ James — Will you be my boyfriend?
@ Avonelle — That’s a good point. If you’re in that spot, I’d say it’s time to institute a What To Do When I’m Slammed process before it happens. Yeah, you could outsource the admin. Or you could create a stock email to everybody you can’t work with so you don’t have to get emotionally involved in the process. A temporary VA?
And, tragically, yes. The likelihood is low. :-P
@ Naomi – Only if you promise never to trap me into having children by tossing your pills and feed me bon-bons by hand while plying me with Shiraz every night. Oh, and pat my head and say, “Poor baby.”
@ Avonelle – To be very honest, I’d much rather have a waiting list than no work at all. Being able to pick and choose your clients from the ones that clamor for your services and being able to book clients a few weeks ahead is an amazing, liberating feeling.
Does it always go that way? Of course not. But you’ll never know until you try.
@James – I totally agree that it is better to have a waiting list. And I do! Right now, I’m scheduling new projects into July.
But I also know that the longer that waiting list is, the more stressed I feel. Yes, that is actually something I need to work on. It is okay to make people wait! (I keep telling myself.)
And a longer waiting list will make it a harder sell for some prospects.
I’ve been wondering about advertising lately, and this post really helps clarify that decision for me. Now, where to advertise…?
Love the way you think Naomi!
In my industry, we call it long-term donor value. All the analysis we have ever seen (and it’s a bunch) shows that donors acquired below a certain level will never, ever pay for themselves no matter how many dollars we throw at them to get them to give more. So we mostly recommend to our clients that the stop trying to cultivate those donors. It’s like throwing money out the window!
And we’ve been raising a bit of a fuss over on our blog for the past few months about all the social media events designed to get donors at $2 here and there. They will never, ever, ever break-even against hard expenses. But with all the momentum, we cannot ignore. So we need a new class of donors — maybe pre-acquired donors — and a new set of metrics — that also involve some of this social stuff.
Then we can sort out how much we should spend to “advertise” in our niche.
Great post, but……
I have no clue what my customers average value will be. I don’t have any yet!! So anything I do is rife with speculation at this point, however I do see advertising as a good avenue to generate some interest early.
And hence my conundrum. Advertising good. Spending money on unknown return BAD! As “Lord” James points out, its just a risk get over it, but at such a embryonic stage in my ittybiz development I am finding it hard to fork out for a new calculator, let alone advertising.
I get this feeling that I will have to attack the decision to advertise much like my decision to start my ittybiz, which in effect boiled down to ” Ah f*ck it, just do it!”. Now all I have to do is work out is how not to suck at it too much! :)
@ Derrin — Good point in that you don’t know. But it’s pretty standard… what do you do? Between James and I, we can probably take a stab at it.
I am more worried about not sucking at it to be honest Naomi. I am pretty confident that I will get a return worth the investment from advertising IF MY ADVERTISING DOESN’T SUCK!
Looking forward to the “Making Advertising That Doesn’t Suck” Speakeasy Naomi :)
Without advertising there’s no leverage. :)
You need to scale up through ads to make it big online.
Love this concise, down-to-earth summary.
I would expand on your point about tweaking your ads to recommend actually conducting testing on them before allocating your full spend. Run several versions simultaneously and see which one wins. Google AdWords in particular provides the functionality to do this and further automates the process.
And to @Kris’s point about focusing on your most valuable customers, Bob Hoffman over at the Ad Contrarian (http://adcontrarian.blogspot.com; always bullshit free and he goes neck for neck with Naomi in the profanity department!) has a great ebook that talks more about this concept, as well as advertising in general.