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Business Marketing

Beware the Zuckerbook money-doubling machine: spotting a bad ad spend

Promises of doubling your money with Facebook ads is actually a pretty bad bet: why the “breaking even” promise of an ad cost is garbage.

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A Not So Great Pitch

Not too long ago, I saw an ad for Facebook advertising. The ad featured a local small business. I forget the exact numbers and business name, although it was something along the lines of “Mary’s Cookies uses Facebook advertising. Recently she invested $2,200 in ads and received over $4,500 in sales!”

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When I play blackjack in Vegas, I am happy if I double my money. If a stock I own doubles in value in a year or two, again, nothing but smiles. But, if my business only returns two times what I put into marketing it, I will be crying in my beer. Perhaps a solopreneur with no other overhead can afford marketing expense approaching 50% of sales, but there aren’t a whole lot of other companies that can survive, let alone thrive, if burdened to that extent. How about your company?

Know Your Key Operating Metrics

A lot of companies that I consult for don’t initially know and understand their key metrics. I get it – they are busy doing stuff, and analyzing numbers falls in the category of things to do that are important but not urgent. However, it is one of the first things we straighten out, because it is not simply important for a business owner to know her key operating metrics, it is mission critical. Marketing as a percentage of sales is one of those key metrics.

Business owners must be vigilant in measuring all of their marketing initiatives so that their calculations are as accurate as possible. I can attest that it is easy to think things are going well, simply because the cash register is ringing, while not recognizing that you have a broken business model due to the cost of acquiring customers being far out of whack with their expected lifetime value.

It happens, so measure and manage.

Wildly Varying Marketing Expense

Marketing and advertising expense as a percentage of sales varies considerably by industry, and even among companies within the same industry. Some mature companies spend aggressively to maintain their brand, while others spend very little after they “arrive” and choose to just, in the words of Seth Godin, “milk the cow.”

Companies knocking the cover off the ball may spend liberally because the money is flowing, while one of the first things struggling companies cut is discretionary marketing spending (an executive decision so foolish and so common that I always think of lemmings rushing toward the cliff when the announcements start rolling out during tough economic times).

A 2014 survey published by the American Marketing Association and Duke University found that companies with less than $25 million in annual revenue (sales) spent an average of 11% of their revenue on marketing. Companies with greater than $25 million in annual revenue spent only 9%. The same study found that business to consumer (B2C) product companies spent on average 16.3% of their annual revenue on marketing, outpacing B2C service businesses, which came in at 10.9%. Business to business product and service businesses checked in at 10.6% and 10.1%, respectively.

The Occasional Outliers

9%, 10%, 11%, 16%, but not 50%! Granted, there are some high-flying technology companies that spend an enormous portion of their sales on marketing and advertising. Salesforce.com and Twitter are among them, spending 53% and 44%, respectively, in 2014.

Both companies are essentially still in land grab territory, spending aggressively to capture relatively new markets. Salesforce.com has a product that, once installed, carries significant switching costs. I suspect the average lifetime value of their customers is sky high.

We didn’t talk about that with Mary’s Cookies.

Perhaps the $4,500 in sales represents a lot of new customers that will stick with the company for a long time and generate plenty of additional sales. In that case, solely looking at the marketing spend relative to the immediate uplift in sales doesn’t do the advertising investment justice.

Twitter is presumably spending big to build out their network, which is understandable – more participants in a network equals greater network effects, i.e., an overall enhanced user experience. Although 44% still strikes me as high for Twitter, I’ll give them the benefit of the doubt.

Still, these are extreme outliers. 10% is a much safer percentage to apply to any business USA selected in a vacuum. And, no offense to Mary, but it’s hard to conceive of her cookie company carrying the high gross margins and high switching costs enjoyed by the software as a service industry.

Another Questionable Pitch

Over the years, I have bought a lot of advertising – radio, billboard, magazine, newspaper, banner ads, AdWords … you name it, I have probably tried it. Okay, that’s not true. I have yet to name a stadium, burn my message in the air with a sky writer, pay someone to tattoo my company name on her forehead… But, I have thrown a lot at the advertising wall over the years, just trying to see what works.

If you’ve also been foolish enough to buy a lot of traditional advertising (which I define as old, boring print advertising that rarely works any longer), no doubt you have heard a favorite closing line of their ad sales people. They ask for your company’s average sale price and then compare it to the cost of the ad buy. They love to be able to say, “You only have to make one sale to break even!”

No joke, I have heard this line no less than 50 times over the years. Breaking even is always pitched as a positive. And, that is one way to look at it – after all, it is better than losing money. Another way to look at the break even outcome is that if you consistently offset 100% of your sales with marketing expenses you are going to have a lot of free time soon ‘cause either your business ain’t gonna make it, or you won’t be in charge of its marketing and sales efforts. The goal is to do a tad better than “break even” with your marketing budget!

Okay, Maybe this Zuckerbook Money Machine Thing is Worth a Spin

Always anxious to play the optimistic fool role and throw more stuff at the advertising wall, I was not deterred by the unimpressive Mary’s Cookies case study.

One of my companies is experimenting with Facebook ads right now. Our target marketing expense in the company is, believe it or not, 10% of our sales. This is a new company and we aren’t certain exactly what our target ideally ought to be. So, we are defaulting to that safe moving target of 10%. We are not going to blow our budget Twitter-style.

At the same time, we want to be careful not to spend too little and find out when it is too late that we haven’t built the sales funnel we projected. Our early results are actually very encouraging. Who knows, if we hit our target with Facebook ads, you may soon see our company featured in a Facebook ads case study. Sorry, Mary’s Cookies. You had your undeserved run.

Try Stuff and Measure, Measure, Measure!

Or, this would be a good time for Mary to say good riddance to the Zuckerbook money-doubling machine. She should throw some other things at the advertising wall in an effort to find an approach that works, marketing initiatives that throttle her sales engine, along with an acceptable customer acquisition cost. AdWords, billboards, naming stadiums … The same advice applies to your business – don’t be afraid to try different marketing initiatives.

Be vigilant and measure the results. Learn and understand your metrics. Discover what works and press the pedal. If that happens to be the Zuckerbook money machine, have it. Just don’t ask to be the feature of their next case study. I called dibs. But, hey, I hear Subway is looking for a spokesperson.

#AdBudgeting

Brett is The Startup Shepherd – part startup consultant, part angel investor/financier, and part business lawyer. A six-time entrepreneur and recovering “left brainer,” Brett particularly enjoys helping startups and rapidly growing socially-conscious companies.

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1 Comment

1 Comment

  1. Justin Callaway

    September 18, 2015 at 4:53 pm

    I’m having a much different experience. With very minimal ad expense and very high return. I’m spending $3 per $50 sale. Once profit is driven, I gain about $30. So roughly 10% with no actual cost or work that I have to put into it. My worry is… I’m spending $100/day with this method. If I were to invest $200/day would my earnings double? Or would they tank? It’s a tricky shark.

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Business Marketing

7 Low-budget marketing ideas for small businesses [sponsored]

(MARKETING) Marketing ideas are often expensive or ultra time consuming, but let’s talk about some proven tactics that won’t break the bank.

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The following marketing ideas are provided to you buy Threadsy:

No matter the size of your business, marketing matters! It’s important for small and big businesses alike to attract new customers, establish brand awareness, and to create buzz around products and services. But we know that not every business owner has tons of funds to devote to their marketing strategy. The good news? There are some highly effective marketing tactics that are also budget-friendly!

Here are seven low-budget marketing strategies for small business owners and side hustlers to grow their reach:

1. Sponsor Local Events

One of the best ways to get to know potential customers? Actually meet and talk to them! When you sponsor local events, you can be on-site to help people put a face with your business’s name. Sponsoring events is also a fantastic way to offer branded merchandise that can help you get your name and your logo out there.

Besides branded materials like signs, banners, or fliers, think about offering some fun items like wine bags to give away to attendees. Goody bags also make fantastic take-home options for local events. A branded canvas tote can be repurposed as an environmentally-friendly grocery bag, lunch bag for work, or a carry-all accessory for conventions and tradeshows. Print your logo on the outside and fill your goody bags with customized items like water bottles, notebooks, pens, and towels.

2. Let Your Colors Fly

Make some cool t-shirts featuring your logo! Wear them to the sponsored events mentioned above, out in the community, or anywhere you may encounter potential customers and can strike up a conversation. You can also offer t-shirts at a discount in-store or online, and turn your loyal customers into advertisers.

Quick tip: Purchase wholesale shirts to reduce manufacturing costs.

3. Social Media

If you’re not already leveraging social media to promote your business, it’s time to start! Think your customers aren’t using social networks? While certain demographics use various platforms more than others, according to fundera, 74% of consumers rely on social media to guide purchasing decisions. Plus, 96% of small businesses say they use social media in their marketing strategy.

So use your social media channels to level the playing field. To maximize your time and effort, determine where your audience members spend their time. Which platforms are they using? If you have a dedicated social media strategist on staff, they can perform audience research to tailor your approach to your existing and potential customers. If you’re running your own social strategy, spend some time digging into the demographics to determine which platforms make the most sense for your brand. From there, you’ll need to decide on the types of content you want to post, how to interact with your customers online, and create a social media calendar to plan your strategy.

4. Host a Giveaway

Once you’ve got your social media strategy up and running, why not host an online giveaway/sweepstakes to build some buzz, boost engagement, and attract followers? Pick a social media platform where you already engage with your customers. You’ll want to offer an item as the prize. This can be anything from a free product, a discount on an expensive product or service, or inexpensive swag like hats to help you promote your brand.

Once you’ve chosen the prize(s), decide on the terms for your giveaway. For example, an Instagram sweepstakes might look like this:

  • Create posts about the giveaway and explain the rules (multiple stories and 1 or 2 posts depending on the length of the contest)
  • These posts should specify the terms, for example:
    – In order to enter, potential winners must follow you
    – Encourage your followers to tag other people who may be interested. Each “tag” gets them another entry into the contest
    – You can also specify that contest applicants must share your post on their own profile
  • Once the contest has ended, pick a winner. Tag them in a post and story announcing what they’ve won and ask them to also share these posts to their own profile

Quick tip: You can also offer smaller or less-expensive items as consolation prizes. People love free swag and it’s an easy way to get your name out there!

5. Referral Discounts

Offering friends and family discounts on your products or services can help you establish loyalty and promote exclusivity. Offer discount codes or create a refer-a-friend program. You can also offer small incentives for customers who share about your brand on social media. Referral discounts are a great marketing strategy whether you use them in-store, online, or both.

6. Create or Update Your Blog

If you already have a website, you can put it to use to help build brand awareness and attract high-funnel customers. Blogging is a low-cost way to generate organic traffic (website visitors via Google or other search engines). If you don’t already have a blog, there are a number of free and inexpensive blog platforms you can use including Wix and WordPress.

You’ll want to write about topics that are related to your product or service and are of interest to your customers. For example, if you offer graphic design, you might want to create content about how to find an effective graphic designer online, or which projects you can do with an online platform like Canva vs. more complex projects where you should hire a professional designer.

Your website and blog are also great places to post “about us” content to offer website visitors an opportunity to learn more about you, your business, and your mission and values.

7. Update Your Google My Business Profile

Google My Business (GMB) is a free tool that allows you to share important information about your business like your address, hours of operation, and contact information. When your listing is optimized with this information, it’s displayed in Google Search and will also appear in Google Maps, which can help you attract local customers.

To get started, you need to create a GMB profile and verify your business information. This is a relatively simple but important step to ensure customers are able to find your business or service online. Make sure to keep your listing updated if you change any information like your website URL, address, or hours.

The takeaway:

When creating your marketing strategy, remember to stay true to your brand. Not every tactic will be the most effective for every business. Choose the tactics that make sense for your brand or product offering. Another way to prioritize is to consider the perceived impact and effort of each marketing strategy. Use the strategies that require the lowest effort but will potentially drive the highest return.

Once you have those in place, decide which of the other strategies make sense for your customers and your business goals. Also, make sure to keep track of all of your marketing expenditures and the sales from these tactics so you can assess which ones were successful and which ones you may need to re-evaluate or alter.

Remember, when it comes to marketing, it’s an ever-evolving system. Trust the process and try to have some fun with your marketing strategy!

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Business Marketing

Yelp listings now show companies’ COVID-19 policies

(BUSINESS) Yelp has updated their settings to allow business owners to make their COVID-19 policies public, so consumers are aware in advance.

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Yelp recently added tools to help businesses share their COVID-19 restrictions and policies with consumers, focusing for now on vaccinations. This is the latest in a series of attempts to combat misinformation and illegitimate reviews plaguing the platform.

Yelp has rolled out two new attributes for businesses to add to their profiles last week.

One option, a tag that reads “Proof of vaccination required,” communicates clearly the need to carry one’s vaccination card (or, presumably, wear a face covering) to gain entry. The other – ”Staff fully vaccinated” – speaks for itself.

These attributes stand to increase customer awareness of the circumstances facing them before visiting a business, thereby cutting down on frustrations – at least in theory.

The general public’s dearth in understanding regarding social distancing protocols and business restrictions certainly wasn’t helped by the fact that different states had different responses to COVID-19 – and that’s not even taking into account the microcosmic changes cities found themselves making.

For example, while the state of New York may not require proof of vaccinations to enter restaurants, New York City certainly does.

Rumors are that San Francisco may be implementing similar legislation, positing that other cities may very well go in the same direction.

To compound on this lack of uniform response, small businesses are finding themselves having to make their own policies as the cities around them ease up on restrictions. It isn’t out of the norm for a restaurant staffed by at-risk employees to ask customers to wear masks, so as Delta surges in places with low vaccination rates, it isn’t terribly surprising that those same establishments would ask to see proof of vaccination.

Yelp looks to make this process as transparent as possible with their profile attributes, but they’re aware that there was a general uptick in frustrated customers leaving poor reviews for restaurants that required masking or other social distancing actions.

“Yelp says the practice [of review bombing] has gotten worse in recent months,” reports TechCrunch.

In response, Yelp will be employing both automated and human moderation measures to ensure that businesses aren’t unfairly targeted for their protocols. This is actually something the company did after adding the “Black-owned” attribute (and subsequent identity attributes) last summer as well.

If you’re interested in adding either of the new attributes to your business profile, you can find them on the “Yelp for Business” page.

As the pandemic continues to develop, we may see additional COVID-19 attributes from Yelp.

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Business Marketing

Society has changed – no one wants help in a store anymore

(CUSTOMER SERVICE) Times are changing in the retail environment: a once customer-service driven experience is evolving into a minimalistic customer service approach.

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Once upon a time, good retail management meant good customer service skills – asking customers if they needed assistance, helping them decide what looked best on them, and politely stalking customers to insure a sale was completed.

As technology evolves and become more prevalent and pervasive in our lives, these skills are no longer needed or wanted. A new study suggest that shoppers want to be left alone while browsing in stores, rather than be stalked, questioned, and coaxed into buying items they may not explicitly want due to persistent pressure from sales associates.

An HRC survey found that a whopping 95% of shoppers would prefer to be left completely alone while navigating the retail environment, rather than shopping under a constant barrage of questions: “Can I help you find anything?” “How are you today?” “What brought you in?” and the seemingly endless stream of inquiries, not to mention the sales pressure from those employees working on commission, can simply be too much for consumers looking to relax, browse in peace, or simply get in and out of a store quickly.

While the greater majority of shoppers may prefer to be left alone, this should not come as too much of a surprise, considering how much technology has supplemented the shopping experience. With enhanced apps and self-checkout lines it’s not hard to understand why most shoppers prefer to browse solo.

Smartphones have given us the ability to check prices, order goods, and check stock all without interacting with another human.

For many shoppers, this is an efficient way to save both time and money while shopping. For other shoppers, like myself, smartphones offer another way to shop without triggering my anxiety. Asking for help, or a price is nearly impossible – I’d rather go without an item than have to ask someone for help.

Sounds ridiculous? Believe me, it feels ridiculous too, but nevertheless, having alternative ways to shop without interacting, is a blessing for many people, for a variety of reasons.

What does this mean for stores? It’s time to take another look at your apps and/or mobile presence (and in-store wifi availability). Since customers are shying away from human interaction, is your app allowing people to scan for prices? Can your customers check stock and order things online to be picked up in store? Can customers use your app to enhance their shopping experience in-store? If not, you may lose customers to stores that offer these enhanced apps.

Times are changing.

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