An article by the Social Media Examiner looked at the value of small businesses doing group deals. It showed that a lot businesses that used Groupon, not only didn’t they not make any money they actually lost it. It’s easy to say that this is an example of a ruthess big company looking at their own bottom line, taking advantage of small businesses but in fact it’s up to all of us who have a small business to do our sums.
What I mean by doing your sums? Every time you spend money on some sort of marketing activity you need to plan on getting a return on investment. The generally accepted return on investment (ROI) is 3 to 1. This means that for every £1 you spend you should get £3 back in profit. Not only do you have to cover the cost of the activity that you also need to cover the cost of the goods and services you’re promoting before you can say whether a marketing activity works for you.
E.g. If you sell purple widgets for £2 that costs £1 to make the profit you make on each widget is £1. If you decide to advertise your widgets and the cost of that advert is £100 you will need to sell 300 widgets to hit your target of a 3 to 1 ROI.
This is pretty simple however where it gets tricky is a number of marketing activities aren’t very easily tracked. With advertising it is difficult to tell how much influence your £100 advert had and how many people it brought to your store to buy purple widgets.
If you have a limited marketing spend advertising is probably not for you. Car manufacturers spend millions on advertising and it is estimated that the cost of advertising per sale is US$400. That’s not too bad if you’re selling a car or US$80,000 but if you’re selling £2 widgets is just not realistic.
This ROI is straightforward when you are just dealing with the financial cost or advertising or running an event. In respect of using social media it can be less clear because you have to equate a financial cost associated with your time. If you’d like to learn more about assessing your return on investment on social media check out this great article by the Social Media Examiner.
The key thing to remember is not every marketing activity you do will be a success but at least if you track the results you can tell what is working and what isn’t.
So what do you think of advertising? Do you use it for your business? Have you managed to track the results? What about group deals have you managed to get them to work for you? Would love to hear your thoughts in the comments below.