Measure Advertising Results

By Steve Gillman

If you have never measured advertising results in your business, you're either not advertising or you're risking throwing your money away. In fact I have seen small businesses spend for ads that produced nothing--not one single sale. In one case a tax preparer I knew spent $500 or more for coupons that came out on the back of cash register receipts. He never saw a single one redeemed.

But at least in that case he was able to measure that result. $500 netted him zero additional revenue, and so he never tried that again. If he had spent $1,000 for radio ads and business increased 20%, how would he know that his ad dollars paid off. After all, his business might have increased 20% in any case, just because the season was nearing. In other words, because there would be almost no way to measure advertising results in this case, he might have thrown away $1,000 without knowing it--and done it all over again the following year.

For this reason, some marketers will say that virtually all television, radio and other non-measurable advertising should be avoided. That might be extreme, but let me tell you another true story to make the point. Years ago, just after the dot-com boom and bust, I was at a seminar on making money with the internet, and the speaker asked the hundreds of us there is we had seen a particular television ad for new internet company. It ran during the Super Bowl, so more than a hundred hands went up. He told us the ad cost $2 million dollars--40% of the $5 million in start-up capital the company had. Then he asked for a show of hands of those of us who went to the website after seeing the ad. Not a single hand went up.

Keep in mind that for a $2 million dollar advertising campaign to pay off it has to produce sales of much more than that. In fact, if the gross profit margin for a given product or service is 25%, the advertising would have to generate at least $8 million dollars in new sales just to pay for itself. It is easy to get eaten up by ad costs when you have no way to test and measure results. Find a way.

Coupons are a good example of advertising that has measurable results. The crudest measurement is this: You just spent $500 for coupon inserts in the local newspaper, and you wither saw a lot of coupons come in or you didn't. Many restaurants count the coupons to track results, and only scale up if smaller tests show a good return on investment. On the other hand, if you got a coupon back, does it mean you made a new sale? Not necessarily. You might have just given away some of your profit to a customer who would have been there anyhow.

In any case, some measurement is better than none. If you do not have a direct way like a coupon, you can at least ask customers how they heard about you. You can do that in person, or have a form for them to fill out, depending on the nature of your business. In magazine advertising it is common to include a code in the address ("dept 24"--which is entirely unnecessary for delivery), in order to know which ad the order came from.

Perhaps the most consistent and scientific way to measure advertising came about with the beginning of pay-per-click ads from Google and others. They will track the click right to your "thank you for ordering" page, so you know the "conversion rate." If you paid $1,200 last month for 3,000 clicks, and they resulted in $4,000 in sales of a product with a 50% gross margin, you netted $800 from that advertising. Seeing those results you can build your advertising campaign more scientifically, so you get a real return on every dollar invested.

One way or another, find a way to measure advertising results for your existing expenditures, or find new advertising mediums that are measurable.

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