Throughout the ProfitNow system, I continuously emphasize the fact that little changes can produce big results overall. To be sure you find these small changes, it’s important that you know and understand the difference between your prospects response rate and your actual return on investment.
In other words, when you spend money on marketing, how many prospects does that marketing generate, and how much money do you put into your pocket because of that marketing. After all, it doesn’t do you any good to generate a thousand prospects if none of them buy from you.
It’s also worthless if you spend a thousand dollars on marketing and sell just five $100 products that have a gross profit margin of $250. This means you just lost $750. Not a very smart move obviously, and yet we speak with business owners every day that are doing exactly that.
Let me tell you about a real life example involving a real estate agent, and how an “uneducated” agent can lose a lot of money by not knowing the difference between response rate and ROI. I don’t want you to fall into this same costly trap.
Not long ago an agent called us and said he was really disappointed with his marketing results. He told me that he placed home listing informational brochures into tube flyers on the signs outside his sellers homes, and after 2 months had only gotten 1 client from them.
He thought that 1 client was a lousy response rate and that he probably wouldn’t continue this promotion any longer. So we started talking. I asked him how many active listings he currently had. He said 4. I asked him how much he spent to keep those info tubes full with his “property flyers.” He said about $40 on each listing per month.
I asked him how many calls he received all totaled in those months. He said he got over 110 calls, but most of them were lousy leads and basically annoying interruptions.
I asked him how much in GCI (commission) he made from that 1 sale. He said his co-broker commission was about $9,600 on the buyer, but after deducting out expenses and splits, his gross profit was about $5,000.
“OK,” I said, “let’s do some simple math. You spent about $160 a month on 4 listings, which total $320 a month in marketing expenses for those 2 months. You received 110 calls, which means you spent $2.91 for each lead you received ($320/110 = $2.91). Of those 110 calls you actually closed 1 of them into a client – netting you a total of $5,000 in gross profit.”
“Yeah” he said, “but I only got 1 sale from all those leads.”
So I asked him this… “if you went down to your local bank and handed them $320, and 2 months later they handed you a check for $5,000, do you think that would be a good deal for you?”
He said it would be a windfall – an unbelievable return on his money. I said, “then why do you think getting $5,000 for spending $320 on your marketing is such a bad deal?”
He said he expected more. So we talked about what he could start doing to make some slight tweaks and minor adjustments that would motivate more prospects to call and the additional steps he could take to convert those additional calls into more clients.
The point I want to make here is simple. Most business owners look at “response rate” and NOT “return on investment.” I’ve seen them actually stop working on promotions that were working, and shift over to promotions that were duds. Many of them just don’t know the difference.
This is the single biggest reason why you should be measuring the effectiveness of your marketing…so you’ll know the difference between a windfall profit…and a hopeless loss.
