Know-How Exchange : Research/Metrics

My suggestion: Figure out what you'd be willing to spend to acquire a new customer and how many new customers you need. Then spend that amount. If it isn't enough, you'll know it soon enough and you can stop the bleeding. If it's too much, you'll have plenty of business and can decide if you want to continue to drive business growth this way, or if you want to cut back.

When you figure out how much you'd be willing to spend, be sure to consider the lifetime value of a customer. You don't have to make back your advertising investment immediately.

The reason it's so difficult to come up with benchmarks is that there are so many different variables. Response rates can vary by market, by medium, by time of year, by category, etc. And most importantly, the copy and the offer are critically important variables. Nobody has ever used your copy and your offer in your market and in your industry before. And the range of possibilities is so broad that there's no way we can begin to estimate what you can expect.

The Direct Marketing Association sells a response rate book that can give you a general idea of response rates by channel, in some industries etc. It can give you some very broad idea of where to start.

But... don't expect it to hold true exactly. You'll have to test out what will work for your business/product. In addition to running scenarios, study where/how your competition sells similar products and let their experience guide you as you get started. Then, as you go you can try new mediums, channels etc to make your business better.

Agreed with Michael and Kris: it depends on your industry, your target market, the message execution...

My previous experience involves an online media download company and a brick-and-mortar furniture supplier. The media download company got a sales elasticity of 0.02 for TV ads, 0.15 for online banner ads, 0.10 for radio and nothing for newspaper by itself (but there was a 0.05 interaction effect with internet). The furniture supplier got 0.04-0.05 for offline marketing actions and a very high response for paid search (Google adwords). Just to give you some idea...

Cheers

Dear natalimorad,

As well as the great advice above and your CPA figures, do you have any figures on LTV (life time value) per customer?

It’s not always effective or productive to ask what your advertising costs you, it’s often better to ask what’s the potential return on the investment of the advertising in terms of the net worth to you per customer over time? Done properly (by which I mean, applied with the right degree of relevance per offer, per customer) advertising is NOT an expense, it’s an investment. So perhaps more important questions to ask are:

“How can we make sure our ads do not suck?”
“What unmet needs do our customers have that no one else in our category is addressing and how can we direct our message to those needs so that our message then garners a response?”
“What do we know our customers need and how are we addressing those needs?”

The keys to all these questions, and really, the keys to ALL advertising and marketing are NOT what the advertising costs to put the stuff out there, it’s how relevant the message is to that SPECIFIC reader, listener, and viewer.

That, and it’s how well that PARTICULAR message connects to the recipient’s needs, issues, wants, desires and so on. You can spend bundles of money and see little in terms of return and you can also spend next to nothing and see huge response. Why? Because of relevance.

In terms of what it costs to produce, advertising and marketing costs what it costs. Period. But to generate a result, advertising and marketing MUST both be targeted and must both be relevant, informative, questioning, thought-provoking, and significant enough RIGHT THEN AND THERE for the recipient to stop what they are doing and take action.

I hope this helps.

Gary Bloomer
Wilmington, DE, USA