by John Boggs

Created on: April 10, 2007   Last Updated: September 19, 2009

Measuring advertising

Henry Ford was credited with saying something akin to, "I know that half of the money I spend on advertising works; the problem is, I don't know which half it is." Measuring advertising is something everyone wants to know how to do. The trouble is that we try to apply simple solutions to a question that has many answers.

Let's discuss some basic business metrics before we get into ways to measure advertising. We are all in business to make a profit. You know, the amount of money left over at the end of the, month after you have collected on your sales and paid all your bills. Too often it is not as much as we would like or even what we expected. Everyone wants to increase profits. There are only two ways to do so. You either increase revenues (money in) or you reduce expenses (money out).

There are lots of ways to reduce expenses and frankly, it is the easiest way to increase profits in the short term. When expenses are reduced too much, however, it lowers capacity, robs you of reserves and eliminates the competitive advantages that enabled you to grow your business in the first place. As I said in the last issue, nobody ever cut their way to success.

The other option is to increase revenues. Here again, there are only two basic ways to do so.

You can sell customers more. That is, increase the amount each of your customer's purchases. Remember not too many years ago, when you visited the golden arches, ordered your Big Mac, fry and Coke, and your server asked, "Do you want an apple or cherry turnover?" Ray Kroc's legacy for MacDonald's was creating one of the most reliable and efficient marketing machines the world had ever known.

The server asked that question because a healthy percentage of those asked the question bought either an apple or cherry turnover. Those few words added up to millions of dollars in added profit each year for MacDonald's for many years. Selling just a little more to every customer, especially low-cost high-margin add-ons sales, create buckets of money on the bottom line.

There is just one other way to increase revenues. You can sell more customers. By expanding your customer base to include more people, you can increase your sales in proportion to your increase in customers assuming you are adding customers of similar value to those you currently serve.

Raise revenues = sell customers more or sell more customers.

But what is the value of a customer and how do you determine that value? Most of us know, or can

• 1
• 2
• 3
• Next Page >>