Be an Ethical Entrepreneur, Marketer, and Business Builder

Scientific Advertising

I finally finished Scientific Advertising by Claude C. Hopkins this past weekend and HIGHLY recommend it. The whole book is around 75 pages and can easily be read in a little over an hour.

There are 2 primary concepts that literally jumped out at me as I was reading. The first blindingly simple, yet profound, teaching of Claude C. Hopkins is simply:

“Your object in all advertising is to BUY new customers at a price which pays a profit.”

Did you hear that?

Just like when you go out to buy a car, or parts, or insurance or anything else for your business you expect (even demand) to get something in return for your money, your marketing is no different.

If you’re not verifying that your marketing is cost-effectively buying you new customers, then you are most likely just throwing money away.

The second point that Claude makes is really just a further clarification of the above statement. On the last page he highlights the fact that pretty soon all advertising agencies will only get paid based on the results they deliver.

Is that how you pay your advertising agency?

“The time is fast coming when men who spend money are going to know what they get. (hahaha, if only that were true in marketing today) Good business and efficiency will be applied to advertising. Men and methods will be measured by the known returns, and only competent men can survive… Enormous advertising is being done along scientific lines… We (advertising agencies) shall be prouder of it (advertising) when we are judged on merit.”

Does that describe your advertising agency?

Now it may be fair to assume that with the advent of new tracking methods such as Pay-Per-Click, Click-Thru-Rates, custom 800 numbers for each direct mail piece, etc. etc. that advertising agencies are indeed moving in that direction.

I would tend to agree, except… Scientific Advertising was published in 1932!

Now do you see why it’s so important to understand the concepts of “Scientific Advertising” that he promotes? For 80 years we’ve been able to track the results of our advertising dollars in terms of the cost/lead and cost/sale and yet we still aren’t demanding that from our advertising agencies (or from ourselves if we handle our own marketing).

It seems to me, however, that times may be changing.

Yesterday I was speaking with a gentleman who does sets primarily for TV commercials. He’s done it for over 30 years and has done sets for commercials, movies, TV shows, and music videos and so seems to have quite a range of experience.

In his personal opinion, TV advertising rates have dropped off so much over the last few years he imagines it will nearly disappear entirely within the next few.

Obviously I questioned him on that, but he insisted that, whether it’s simply a byproduct of the economy or not has not been proven yet, but if not, TV commercials are on the way out. Could that be because businesses are finally demanding results from their marketing or dropping it altogether?

In practical terms, this is how you hold your advertising agency’s feet to the fire.

  1. Track the following:
    1. Cost of advertisement
    2. Number of people who inquired because of it
    3. Number of people who purchased because of it
    4. Lifetime value of each customer
    5. Profit Margins
  2. Calculate the following:
    1. Cost of advertisement/number of people who purchased because of it – This gives you your “cost/sale”
    2. Lifetime value of customer x Profit Margins – This gives you the profit you’ll make off of each customer or “profit/customer”
  3. Compare the following: your “cost/sale” to “profit/customer” – If the “cost/sale” is higher than “profit/customer” drop that marketing project or figure out a way to improve it in a jiffy.

Let’s throw in a few numbers to make the point clearer.

  • Cost of advertisement: $1000
  • Number of people who inquired because of it: 10
  • Number of people who purchased because of it: 4
  • Lifetime value of customer: $2000
  • Profit Margings: 15%
  • Cost/Lead = $1000/10 or $100
  • Cost/Sale = $1000/4 or $250
  • Profit/Customer = $2000x.15 or $300
  • Our Profit/Customer ($300) is greater than our Cost/Sale ($250) so we keep the marketing

Keep in mind that you should always be improving your marketing to be more cost-effective.

In other words, even though we’ll make $50 profit on that advertising program, if we can improve our marketing or sales process to increase the number of people who purchased based on the same advertisement to 5 (an increase of 25%) our profit would double (increase of 100%) to $100 per customer.

To get some practical ideas on how you can better track your lead sources to determine your cost/lead and cost/sale be sure to check out my blog about why Asking your customer “how did you hear about us?” is a waste of time and what to do about it…

To your Scientific Advertising success, Bryan

About Bryan Trilli

Entrepreneurial Junky is probably the best way to describe me. I've bought, run and sold 3 businesses in 3 different states and started a 4th. The first 3 were brick-and-mortar service-based businesses and the 4th does internet marketing for service businesses. My team at Optimized Marketing guarantees to double your business' internet contacts in just 90 Days.

Trackbacks

  1. […] cost/lead and cost/sale for each marketing project. I address this concept in detail in my blog on Scientific Advertising.  Keep in mind that simply asking your customers “how did you hear about us?” can be […]

  2. […] is your cost/contact or Cost Per Acquisition (CPA). Know if it should be $10 or $500 by knowing the lifetime value of your customers. The lifetime value can vary significantly for residential, commercial, and […]

Speak Your Mind

*