How much is your Google ads or Facebook advertising costing you in terms of sales? When we reach out to a broad number of people our marketing and sales process takes them through a funnel from broad reach to an eventual sale. A lot of people drop off along the way. We might get the attention of 100 people but only make 1 sale from those 100. The diagram on the right shows a typical sales funnel.
Here’s a brief look at how to calculate the true cost of your advertising. It’s also a consideration of how leaky your sales funnel is.
The simple version:
1) You place a FB ad to entice people to click through to a giveaway, a free PDF about your Widget that will hopefully get them interested enough to buy one.
2) Your ad is running and after 64K impressions of the ad you find you have had 200 people click through to the free PDF giveaway and the campaign has costs you, at this point, $200, or $1 per click. So good so far. You’ve got 200 people into your funnel at a cost of $1/person
3) Now say that out of those 200 people only half of them actually bothered to download the PDF. So now you have 100 people in your funnel – the other 100 were either too busy, or decided the PDF or Widget just wasn’t for them after all, or they forgot. now your 100 people in the funnel have cost you $2 each.
4) Out of the 100 who downloaded your PDF, 50 of them actually spent the time to read the material (I know, I’m being overly optimistic here, but you’ve written killer copy and it’s compelling reading). Now the other 50 who’ve dropped off, for whatever reason, have just doubled the cost again of your customer in the funnel. The 50 remaining in your funnel have cost you $4 each.
5) Now the “call to action” on your compelling PDF is a button to get to your sales page where they can buy your widget. 20% of the people reading your copy are motivated enough to click on that button and arrive at your sales page. 20% of 50 people is 10 people. Those 10 people have cost you $20 (let’s check the math – $20 x 10 = $200).
6) Out of those 10 who have landed on your sales page, just 4 of them purchased the Widget. The others thought it was too expensive, didn’t have their credit card but then forgot to come back, or who knows why people abandon shopping carts or get cold feet at the last moment. Now the true cost of your advertising, in regards to sales, is $50 per person.
If you were selling a $200 Widget with a net profit after costs of $100, then your $50 customer will still yield you $50 profit. The marketing was worth it and who knows, the customer might come back! But if your product was a $60 Widget with only a $20 profit margin, then you are in trouble – you’ve just lost $10 ($60-$20 = $40 Widget at cost – $50 cost of getting the customer = -$10).
Now what would happen if you were able to shorten the funnel? Let’s say you took out the step where the potential customer has to download the PDF to get inspired, find the button for the sales page and click through. What if the FB ad directed everyone to a landing page that had a shorter version of your PDF and a sales option, right on the same page. What could happen?
Let’s imagine a shorter funnel…
1) You place a FB ad to entice people to click through to a landing page with a description of your Widget that will hopefully get them interested enough to buy one, which they can do at the bottom of the page.
2) Your ad is running and after 64K impressions of the ad you find you have had 200 people click through to the landing page, at this point, $200, or $1 per click. So good so far. You’ve got 200 people into your funnel at a cost of $1/person
3) Now say that out of those 200 people only half of them actually bothered to read down to the end of the landing page. So now you have 100 people in your funnel – the other 100 were either too busy, distracted or decided the Widget just wasn’t for them after all, or they forgot. now your 100 people in the funnel have cost you $2 each.
4) Now the “call to action” on your landing page is a sales button to make the sale. In the first example, at step 6, we had 40% of the people who had made it down the funnel were actually going to purchase. Here we are at a similar point and let’s say, with this group who haven’t had to go through a process as long as the first example, that just 20% of the people reading your copy are motivated enough to click on that button to purchase. 20% of 100 people is 20 people. Those 20 people have cost you $10 (let’s check the math – $20 x 10 = $200).
6) Out of those 20 who have decided to purchase and actually got to the shopping cart, 5 of them opted out at the last second. Now you have 15 people who purchased at a cost of $13.33 each. Now if you were selling that $60 Widget with a $20 margin you would still be ahead after paying $13.33 for your customer.
You can see that the shorter funnel may have made a huge difference to the cost of a customer. It may not always work out this way if the marketing was to lead the potential customer through an educational process – then a longer funnel may be better. If your product was a $2,000 product rather than a $50 product, then a longer funnel to get just the right, enthusiastic customer, might be the better strategy—rather than a short funnel that leaves everyone landing on the sales page and screaming “$2,000! You have to be kidding!” simply because they haven’t been educated in the real value of the product.