November 26, 2015 admin

How To Calculate How Much Can You Afford To Spend On Your Advertising Cost

Customer-Experience-Metrics

“If you can track it and measure it you can control it”

In online world, you’re doomed for failure if you don’t track and measure.

But how do you know exactly how much can you spend on your advertising cost?

Actually it’s quite simple…the formula you’re going to use is based on low conversion metrics to keep you safe.

This way even if you have low conversions, you can still make a profit.

Here is the strategy – driving traffic to your landing page, get people to sign up than by your product.

Let’s say you’re selling a product for $50.

So we need to calculate how much can you afford to pay per optin and per customer?

Everything online gets, measured in 100’s; 100 clicks, 100 optins, etc…

Low optin rate is about 20% meaning if 100 people/clicks come to you landing page we need 20 signups.

That means you would need to have 500 clicks to get 100 people on your list

Low conversion rate is 1-3% meaning 1-3 people out of a 100 on your list would buy your product.

Let’s say that you sold three products 3x$50 = $150.

That means you can afford to spend $1,50 per optin. Makes sense?

Divide $150 with 100 optins you get $1,50 per optin.

When you divide $150 with 500 clicks you get $0.3 or 30c is what you can afford per click.

So it costs you $50 to acquire a customer.

Cost: $150

Leads: 100

Cost per lead: $1,50

Customers: 3

Cost per customer: $50

 

But wait a minute, what about the profit?

Well, this strategy is based that you don’t make a profit on your first sale.

It’s based that you can spend more money on your advertising cost than your competitor because you are not looking to make a profit on your fist sale because all profit is in upsale in your funnel…your next product…

You are looking to brake-even so you are acquiring customers for FREE!

Get this, and you will be able to acquire unlimited customers for Free.

It’s what sets you up from competition because if they are looking to make a profit on that first sale, they will have less money to spend to get that customer.

This way, you’ll wipe them up simply because you have bigger budget.

So any product you sell after that is your pure profit!

It’s the same strategy McDonald’s is using: you pay for burger $2, they make close to nothing but anything else they sell you; is pure profit…makes sense?

Does it work? About $24 billion in sales per year would qualify for that.

 

If you don’t have another product to upsale to your customer, then you will have to lower your advertising cost and go through same formula above.

This formula will serve you as starting point, we used very low conversion rates just to be safe.

Just imagine if your optin rate would be 40% and conversion rate would be 10% then the whole story changes.

You would need 250 clicks to your website, and you would sell 10 products = $500.

Cost: $150

Leads: 100

Cost per lead: $1,50

Customers: 10

Cost per customer: $10

The whole story changes and you would even have more money to spend to acquire more customers…

As copywriting legend, Dan Kennedy says “Ultimately, the business that can spend the most to acquire a customer wins”

Thanks for reading,

Damir

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