It’s always a good idea to understand how the numbers work together before spending any money on marketing. How else can you make a profit if you don’t actually know what constitutes real profit.
Marketing Return On Investment (ROI) is determined by how much you spend on marketing minus your investment, divided by your investment. But profit is actually determined by earnings minus all costs.
Know the Formula: ROI = (Return – Investment) / Investment
In other words, return on investment minus investment divided by investment. So, if you earned $10,000 and invested 2000 dollars, it would look like this:
10,000 – 2000 = 8000
8000 / 2000 = 4 which means your ROI is 400%
That is a huge amount of return on your investment and that means your marketing is working exceptionally well, which then means is safe for you to increase your marketing budget.
Know Your Profit
However, there is one number to be cognizant of and that is your cost outside of advertising. For example, how much did that 8000 dollars worth of product cost you? If you spent 8,000 dollars on your product, you didn’t make any profit. Your profit would be 8000 – Cost, in this example returning zero profit.
Set Your Initial Budget
The first thing you need to do is to set your budget. The budget needs to be based on a realistic amount of money that you can afford to lose. But it also needs to be based on some type of information such as:
- How much your product costs
- How much you make from each sale
- Whether costs increase with sales
Any information that you know that changes costs is important to know, so that you can set a realistic budget. If you do it right, you should come out way ahead.
Determine Realistic ROI Goals
Study your competition and industry standards to find out what a reasonable ROI is. That way you can set a goal that is realistic and achievable. You don’t want to set too high of a goal that you can’t meet, but you do want to set a realistic goal that makes sense.
To earn a good profit, you will need to engage in some form of marketing. Sometimes the costs aren’t always direct. For example, content marketing is often perceived as free. But is it? You must spend time writing and promoting. You may even pay someone like me to do these things for you.
Those things need to be added to your investment costs to get a more accurate picture of your true cost. However, it is better to figure out one thing at a time and not lump all actives together. For example, you might want to figure out your ROI for content marketing versus search engine advertising for instance. This can take a little more work, but it’s important to do, so that you know where to invest your time, effort and money.
Oh and for the record content marketing is one of the best and smartest investments any business can make, it doesn’t give a short term return but it’s long term returns are unbeatable, contact me if you need help.