With all the various types of marketing out there, the most frequently asked question I receive is which one is best for any given business. People are starting to realize that what works for one type of business, may not be very effective for another. In addition, one the most important things to consider is what a customer is worth to you. This can be a difficult concept to grasp, but once done the types of marketing you should be doing will become apparent. Of all the kinds of marketing you will come across and marketing ideas you will hear, it usually comes down to just a few forms of marketing.
Determining the Value of a Customer
There is a difference between selling a new car for $40,000 and selling a hot dog for $2. The car dealer and manufacturer can blanket all the media outlets in the hopes they get someone to test drive one of their vehicles. Simply, if a guy is about to spend $40 on a car, the dealer and manufacturer want him to at least consider their product.
However, if you sell a low ticket item, you will have to have a massive response to an expensive campaign. Indeed, for some companies the question becomes if you can physically handle the volume of customers to make up the money you spent on marketing. The simple example of this is if you carpet bomb the local TV and radio stations with a $20k campaign. You may only have a $.5 margin on your product. In other words, you have to service 40,000 customers to break even. Your facility may not be able to handle this or you may not have the resources to get enough products on hand.
I more down to earth example may be a local clothing store. I’ve seen store owners want to start their new business with a bang to get an influx of customers immediately, and hope to convert them to loyal customers after they initial visit. They hit all types of marketing and received an excellent response. Simply, their ad was fantastic and they got a ton of airplay on TV. However, after the fourth day of their campaign, the store had virtually no inventory and the shelves were empty. The advertising campaign worked too well and now customers were still coming, but leaving very disappointed. The store actually sold out everything they had and lost money. Even worse, they alienated a lot of the local market for their products. Of course, the types of marketing you will be doing with usually be dependent on your margin and the amount of customers you actually want.
Finding your Return on Investment
The next step is to try to figure out what you can spend to get a single customer through the door. This doesn’t have to be an exact number, but you should try to get it as close as possible. The simple formula is track how many people come through the door in a month, add up all of your revenue, multiply your revenue by your profit margin, and divide by the number of visitors. For example:
200 people came into the store, I sold $4,000 worth of product and I average a 40% margin on my products. Thus, $4,000 (revenue) * 40% (margin) = $1,600. So we know for every 200 people that walk through your door, you will profit $1,600. Therefore, if you spend $8 to get someone through the door, you will break even. We purposely did not include the costs associated with having a store such as rent and utilities. The simple reason is if you have a $2,000 rent, the above numbers would have been a negative. Obviously, just because you did not profit one month, doesn’t mean you should immediately stop accepting customers.
Type of Marketing
Television: For the most part you will receive a good response to any commercial that gets good play on television. However, the cost can be too much to fit into your business model. In addition, you run the risk of getting too much response to the point you cannot service your customers properly. This could easily turn into disaster if you alienate more customers than you help. If you cannot handle a large amount of customers and achieve a profit, don’t get involved with television marketing.
Radio: Radio is very similar to television, but it is cheaper and provides less response. Thus, it is really the same thing as you should expect to pay the same amount per customer for either medium. Radio allows you to be a bit more granular so you can control the advertisements a bit better. If things are becoming out of control, you can pause your campaign while you regroup.
Direct Mail: Direct mail is an excellent way to let people know about your business or any special offers you are having. It is also cheap, and the cost per customer is probably the lowest of any type of marketing. Most campaigns get around a 3% closure rate for a local business. In other words, for every 100 pieces you send out you should expect three good customers out of the deal.
Newspaper: Newspaper advertising is very hit or miss and many people don’t read the newspaper as much as they used to. However, it can still be effective for certain types of products and services. If you aren’t sure, you can usually get a good rate out of most papers for a test. If the test works, great you can easily keep it going. If it doesn’t, you haven’t lost much money. Experimental marketing is one of the best ways to find what is really going to work. Just be sure you have a method to track where your customers heard of you.
Billboards: This can also be very effective if you have a service that people want right now. A restaurant is a good example. You can put your sign on a busy street and if someone is hungry, you may earn a customer. This is also pretty inexpensive and can easily pay for itself if you have a “right now” kind of a business.
Internet: Doing Internet Marketing has gradually replaced the phone book. When people are looking for a business or service, they check the Internet. For this reason, it is nearly imperative you have a nice looking website and you have it marketed properly. You can lose a lot of customers to your competitors if they come up in search engines before you, or even worse if you don’t have a nice site that lists your products and services. The era of the phone book is over, and a company cannot survive without an online presence.
These are the major types of marketing. As suggested, make sure you understand your customers before you begin marketing in any one of these areas. If you have a large ticket item, consider the blanket approach. However, be extra cautious if you have sell small, inexpensive items or you have a low margin. You do not want to sell out your inventory and lose money! These include things like viral marketing and several other approaches to marketing that you can find by searching the Internet. Choose the types of marketing that are most likely to maintain a steady flow of new customers and give you an opportunity to grow at your own pace. Of course there are also some alternative marketing areas that you may wish to explore.