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Q. How can I compare the profitability of one ad to another? I place a number of different ads in different newspapers to promote my business. How can I determine which ads are the most profitable for me? A. Marketing expert, Joe Gracia, responds: Create an Effective Tracking System The very first thing you must do is create an effective and consistent tracking system, so that you can accurately count the number of responses from each ad. This may sound very basic, but you would be surprised at how few business owners ever track the results of any of their marketing efforts. Without such a tracking system, you really are shooting in the dark and your chances of success are very slim. To create a tracking system, you can assign a different code to each ad, such as a Dept. Number in the address, or a fictitious Extension number next to the phone number. Another way to track is to include a coupon in each ad, with a code within the coupon that tells you which ad and publication the coupon represents. When someone responds to one of your ads, you either collect the coupons, or ask for the code in the ad, and record it on your daily tracking log. Then each week, you can add up the responses for each ad and you'll then know which ones produced for you and which ones didn't. Without an effective tracking system, you will be throwing your money down the drain. Our Give to Get Marketing Solution provides you with an easy to use tracking system complete with ready to fill in forms to make tracking a breeze. Once you have your tracking system in place, you can then easily compare the effectiveness of each of your ads. Comparing Your Ads Cost Per Response (CPR) One way to compare ads is to compare the Cost Per Response. Simply divide the cost of the ad by the number of responses. If one ad cost $100 and you received 10 responses, then your CPR for that particular ad would be $10 per response. If a larger ad cost $200 and you received 15 responses, then your CPR for that ad would be $13.33 per response. The smaller ad produced a smaller Cost Per Response. Cost Per Sale (CPS) To determine the Cost Per Sale, simply divide the cost of the ad by the number of actual sales. Again, if you paid $100 for an ad and it produced 10 sales, your Cost Per Sale would be $10. Compare that to an ad that cost $500 and produced 83 sales. Your Cost Per Sale would be $6. In that case the more expensive ad would be the more profitable. Return On Investment (ROI) Some advertisers use a more stringent gauge called Return On Investment. ROI % = ((Total Gross Profit divided by Ad Cost) -1) X 100 That's your Total Gross Profit divided by your Ad Cost. Take that number and subtract 1. Then multiply that by 100. The result will be your Return on Investment. Let's say that you are selling a product for $50, and your Gross Profit on that product is $25 each. You place an ad that costs $300 and you received 20 orders for your product. Here's your ROI % formula: ROI % = (($25 Gross Profit X 20 Sales) / ($300 Ad Cost)) -1 X 100 ROI % = $500 Gross Profit / $300 Ad Cost = 1.67 1.67 minus 1 = .67 .67 X 100 = 67 ROI % = 67% If you determined that another ad had a ROI% of 22%, then, all things being equal, the ad with a 67% ROI was a much more profitable ad for you. Determining Your Break Even Point Often you will want to know exactly how many product units you would have to sell to break even on your ad cost. Here is the formula for determining your break even point. To determine your break even point, you need to know your gross profit on your product, and your total ad cost. Simply divide your ad cost by your gross profit and the result is your break even point. Break Even = Ad Cost divided by Product Gross Profit For instance, if you are selling an item that has a $25 gross profit, and you run an ad that costs $200, then you divide $200 by $25. The result is 8. That is how many units you must sell from that one ad to break even. Break Even = $200 Ad Cost divided by $25 Gross Profit = 8 Units If you are selling a number of different products, then use the average product Gross Profit in your formula.
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