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How much money do you put back into a business?

7:07 pm on Aug 13, 2002 (gmt 0)

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I am getting caught in the business storm. Our business keeps growing, which is good, but I do not know how much money to put back in advertising and this is hurting my business. Do you who or where I can find assistance in this?

2:05 pm on Aug 15, 2002 (gmt 0)

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Well, you must be making money, so, sounds like you have a good problem!

Businesses can spend anywhere from 2-40% of revenues on marketing. If your profit margins are high you can support a much higher %. Similarly, if you sell a product that tends to generate lots of repeat orders, you can afford more.

You need to be able to track your ROI on advertising/marketing expenses. The first step is to be able to track all of your leads and sales and attribute them to a source. This can be difficult and may require some interpolation.

Second, calculate your ROI on the ad - example: you run a classified add in a magazine for $100/ month. You are able to attribute 18,000 in sales to this ad. Your gross margin on your product is 15%. You earned a gross margin of $2,700 versus expenses of $1,200. This is a ROI of 225%

Try to apply this simple system and keep the ROI's north of 100%

3:49 pm on Aug 15, 2002 (gmt 0)


WebmasterWorld Administrator rogerd is a WebmasterWorld Top Contributor of All Time 10+ Year Member

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Wingslevel's advice is on the money, alex. The real key is understanding your ROI on each ad. If an ad produces incremental income, then it's probably a good thing to do.

I'll throw one other variable into the mix: repeat sales. Many direct marketing companies LOSE money on ads, because they expect to profit on repeat sales to the customers. For example, they might run an ad that produces 100 new customers, but even after the profits on the orders are counted, they still lose $1000 on the ad. This means that each new customer cost them $10 - that's the cost of acquisition. Based on experience, though, they know that they'll recoup this in the coming year by additional sales to some of those new customers.

The companies with insane bids on Overture are no doubt playing this game. IMO, planning to lose money on your ad campaigns is a dangerous game unless you really know your costs and your customer behavior. If you miscalculate, your ad costs could put you out of business before your long-term sales catch up.

5:07 pm on Aug 15, 2002 (gmt 0)

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We sell vitamins so we almost always keep repeat sales. What would I search for on the internet to find a business advisor?
5:13 pm on Aug 15, 2002 (gmt 0)

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I have heard fixed percentages for marketing but I think that all depends on how much your marketing makes you. If you are confident in your marketing success, throw as much money as you want to it and you know you will get way more in return. However, if your marketing campaigns are not producing good numbers, I think it is time to reinvest in learning all you can about web marketing principles.

My basic costs go into additional hardware doodads, domain purchasing/hosting, and software. In general, I only buy what I need and what I know will help me make money.