| ||
| ||
|
Marketing Information | |
| Domain Names | E Books | Email Marketing | Ezine Marketing | |||
| Internet Marketing | Marketing | PPC Advertising | SEO | |||
| Traffic Building | Web Design | Web Development | Web Hosting | |||
| ||||||
|
| ||||
|
Profitable Marketing Programs Part 2: Figuring Break Even Point
In Part 1 -- http://www.websitemarketingplan.com/online/profit.htm -- I discussed how to consider both long term and short term profitability in your marketing programs and assumptions that go into conducting a break even analysis. Here in part 2, I will look at three different break even formulas. Figuring Break Even Point To figure the break even point, you should know the program's expected response rate, the program's expected conversion rate, and the lifetime value of a new customer. In the formulas below, the response rate and conversion rates should be expressed as a decimal (Examples: 1%=.01. One-half percent=.005). The lifetime value should be expressed in dollars. For more details, please read Part 1 of this article. Figuring Break Even Point Based on Lifetime Value The lifetime value formula requires you to make assumptions about how many times a customer will purchase from you over a period of time (usually around 18 months to two years) and the average profit on each sale. For average profit, start with your total sales dollars and subtract cost of goods; distribution costs; advertising and marketing expenses; and any other variable expenses related to making product and filling orders. You may also want to figure income taxes into the equation. Divide the average profit number by your total number of transactions. You can then figure the lifetime value using this formula: Lifetime Value = (Average # of purchases over lifetime) X (Average $ profit from each sale) If you are paying for the program based on customer acquisition (i.e. you only pay if a lead generated by the program converts into a customer), you generally want to pay less than the lifetime value per customer in order to make a profit. As an example, say on average you make $20.00 profit from each sale. Also, on average, a customer will buy from you 1.5 times over the course of two years (here, the "lifetime" is considered two years). Multiplying the two figures, that means each new customer will generate $30.00 in profit for your business. So, you break even on the program at a cost of $30.00 for each new customer. Pay Per Click (PPC) Break Even Point But what if you are paying on a pay per click (PPC) or pay per action (PPA) basis, a certain amount for each lead the program generates? In this case, you are paying for all of the leads (or visitors) who do not purchase as well as those who do. You therefore have to factor in the conversion rate to find your break even point: Pay Per Click Break Even = (Expected conversion rate) X (Lifetime value) Continuing the example above, the lifetime value of each new customer is $30.00. Also, on average, 1 out of every 200 leads (clicks or actions) generated from the PPC or PPA program convert into customers for you. $30.00 times .005 is .15, or 15 cents. In other words, each click or action is going to be worth no more than 15 cents to you. If you have a two-step process to help improve conversions, you multiply in the conversion rate of the intermediary page (if you are generating leads or action for more than one program on your intermediary page, don't forget to factor all of them into your conversion rate). For example, if your PPC ad lands on a lead-generating page that sends 13% of visitors to the sales page described above, and the sales page turns 5% of those leads into customers, then you multiply the lifetime value by both conversion rates: $30.00 times .13 times .05 = .195, or 19.5 cents per click or action. In that case, you would want to pay no more than 19.5 cents for each click or action. CPM Break Even Point What happens if you are paying per thousand exposures (in other words, CPM - a flat rate for each 1,000 subscribers, visitors, or email addresses exposed to your message)? Now you should consider response rate as well as conversion rate and lifetime value. To figure out your break even CPM: CPM Break Even = 1,000 X [(Response Rate) X (Conversion Rate) X (Lifetime Value)] To profit from new customers gained through the program, you must pay less than your break even amount. Before making final decisions, however, consider other factors the break even analysis does not address. Any additional internal resources required to implement the program, for example, are additional costs. Remember, too, that profit impact goes beyond the purchases your new customers make. New customers gained by word of mouth (originating from but not a direct result of the program), increased awareness due to the promotion, and increases in off-line sales are indirect benefits of the program. In the long run, these all result in additional sales. Opportunity costs may come into play as well; consider if you could better use your time and money to implement more profitable programs. With each marketing program you implement, if you are aware of your break even point -- the point at which the program becomes profitable to you -- and make decisions based on those profits, your business will grow. Publication Guidelines: When publishing this article on the Internet, please make at least one URL in the "About the Author" resource box clickable. Also, please notify Bobette Kyle of publication (articles @ websitemarketingplan.com). Copyright Bobette Kyle. All rights reserved. Bobette Kyle draws upon 12+ years of Marketing/Executive experience, Marketing MBA, and online marketing research in her writing. Bobette is proprietor of the Web Site Marketing Plan Network, http://www.WebSiteMarketingPlan.com, and author of the marketing plan and Web promotion book "How Much For Just the Spider? Strategic Website Marketing For Small Budget Business: http://www.HowMuchForSpider.com/TOC.htm
MORE RESOURCES:
Marketing - Google News |
|
|
|
RELATED ARTICLES
Whats In a Business Card? Over the years as I have attended trade shows, networking meetings, chamber events and more; I have noticed a few things about the successful and the not so successful. First of all, do you have a business card? If you belong to a large corporation, you were probably issued business cards as a matter of course, almost as if it was a company perk. 51 Ways to Say Thank-you in a Fundraising Letter for a Non-for-Profit (Includes Examples & Samples) One of the hardest jobs in fundraising is crafting original thank-you letters. You want to be thankful. 8 Secrets to Marketing Success The profits of a business are totally dependent on marketing. Otherwise few, if any, sales will be generated. Client Attraction Technique #3: Study the Competition! One very powerful and cost-effective marketing strategy is to study the competition. This is an important exercise, as essentially it allows you to find out as much as possible about the opposition - how best they operate, what they lack and then how to capitalise on it!Study the Competition OfflineStart by reviewing the Yellow Pages, the Thomson Local or even go online to determine what you're up against locally (and if applicable nationally). How to Turn Your Marketing Into a Money-Making Machine - Examples of solid Marketing As Claude Hopkins presented in his Scientific Advertising many decades ago, there are scientific ways of tracking your Marketing and Advertising and determining clearly and unequivocally what works and what does not. Without knowing the facts about what is effectively increasing your leads, and subsequently your sales success, you might as well be throwing money out the window-literally. Do You Have This Important Tool in Your Marketing Arsenal? Many business owners do not understand the authenticity and validation that a simple toll-free number adds to their business presence.It is particularly important that any business owner whose market is not exclusively local consider beefing up the image of the business with a toll-free number. Top Ten Blunders Exhibitors Make in Expos/Tradeshows Triple your response from expos by avoiding the top ten blunders at expos. Turn disappointment into sales success!If you are like most exhibitors, you were disappointed from the results at your last expo. Devious and Deceptive Packaging Have you read anything in the news lately about childhood obesity, Jose Canseco and steroids, or fat free foods? Where is the truth in any of that?If only we lived and shopped in a pure world where labels told the whole truth and nothing but the truth. But while consumers rely on labels to make wise nutritional choices, food manufacturers use labels to sell their product. Consider Consumer Psychology In your marketing efforts, be they on or offline, it's wise to consider the psychology of the consumer you are targeting. If you've done your homework you've developed a profile of your ideal customer and how your unique selling point speaks to them. Marketing Tips - Ten Quick Marketing Actions It is often difficult to manage to do marketing tasks when you have a busy business or professional practice. Here are 10 ideas each of which take 5 or 10 minutes and can be done between appointments or when you take a break from working on a large project. How to Start a Big Mail Service A BIG MAIL SHOULD CONTAIN:At least three to four Mail order Magazines Circulars containingoffers or interest to new mail order dealers. Circulars which theBig Mail Dealer has been to mail. Marketing A Misunderstood or Scary Product or Service What do you do if your business, product or service is something hardly anyone is aware of or understands? Or worse yet, if it is something they are afraid of or want to avoid?My answer is three-fold.First, focus on the SOLUTION you are providingWhat is the primary problem your prospects have that you can solve? Do they have pain you can relieve? Do they have an ailment or affliction you can cure? In these cases, you are not selling your "scary" or "misunderstood" product or service, you are selling pain relief or healing. How to Critique Your Own Yellow Page Ad Forget what you know about your business Your goal is to see your Yellow Page display advertisement the way a directory user sees it. You can't act like you know anything about your enterprise that isn't there, on the page. Marketing the Government for Profit Steps and tips on marketing your business to the government.Fact: Federal, state and local governments buy over $450 billion combined in goods and services each year. Insiders Secret to Selling Mailing Lists If you've got a mailing list of at least a thousand names or more, you're sitting on a gold mine. All it takes is for you to get the word out that you've got a mailing list for rent, at a competitive price, and you should be home free!First of all, you've got to have a bonafide list of customers - a list of names of people that have responded to an ad or bought from you. How to Get the Right Clients and Avoid the Wrong Ones If you are like most service professionals and small business owners one of your primary concerns is generating as many leads as possible. And that may be your biggest mistake, resulting in wasting time on unqualified prospects and working with too many clients you wish you didn't have to. Planning Your Postcard Marketing Campaign Before you create your postcard, do a little planning. Ask yourself:1. Effective List Management Can Save You Big Let's talk about how to keep your postage costs down.So far you have been following my advice and mailing to the same list more than once. Discovering The Benefits That Hook Your Prospect Benefits! They're what marketing is all about. No doubt you've heard the mantra over and over: "Benefits, not features. The Forgotten Market There are a great many online business people who are forgetting the potential that this particular forgotten market can be providing them. The forgotten market I am referring to is the off-line market and as for the potential, it could prove to be quite profitable for you.
|
| Domain Names | E Books | Email Marketing | Ezine Marketing | |
| Internet Marketing | Marketing | PPC Advertising | SEO | |
| Traffic Building | Web Design | Web Development | Web Hosting |
|
Home | Site Map | Traffic Building
| Free
Classified Ads | Free-For-All
Ads | Reciprocal
Links | Search
Engines | |
| Copyright © 2006-2007. The Highland Marketing Group. All Rights Reserved. |
|
| ||
|
Comment by George C. Leef, Director of Research
