Let’s face it, most business owners work on ‘gut feeling’—a combination of experience and intuition.
‘Testing’—measuring your results from your marketing, comparing results one against one another, and making decisions based on the results of that testing, rather than gut feel—is foreign to many.
So here’s some information to give you insight into just how important testing and measuring is for your business, your marketing, and your management.
We’ll look at different areas that need testing and just how easy that can be for you.
How do you put a marketing or management question to a vote without measurement?
What you can measure you can manage…
It’s amazing how few companies ever test any aspect of their marketing and then compare it to something else. They bet their destiny on arbitrary, subjective decisions and conjecture.
The way to avoid this is to measure the results of different approaches or ideas. But it’s not just measuring everything. Here’s a simple example: Ever wonder why McDonald’s stores are red and yellow? (It’s not by accident). McDonald’s tested different colours and found red and yellow generated better results for them.
The point is—and this is not guesswork—when you test one approach against another and then carefully measure and tabulate the results, you’ll be amazed that one approach almost always produces substantially better results by a significant margin.
Measurement has a purpose—to demand maximum performance from each marketing effort.
Any business CAN achieve immediate increases in sales and profits merely by measuring what’s currently happening and then measuring what happens when some element in the marketing mix is changed.
That is, by testing one sales thrust against another, one price against another, one ad concept against another, one headline against another, one TV or radio commercial against another, one follow-up or up-sell overture against another, and so forth.
What you can measure you can manage…
When you measure the responses, you can make informed decisions about whether a particular ad or marketing strategy pays. If it does, your ‘ad budget’ becomes meaningless because you just keep running it over and over until it stops working. You may blow your ad budget a hundred times over AND make a fortune. But you can only know that by measuring.
You need to measure every variable in your business. Then measure what happens as various elements are changed (taking care to check that only one thing is changed at a time, of course).
But don’t stop. Keep measuring and testing to find out ‘how high is high’?!
Keep experimenting and come up with better approaches than the current ‘control’ approach. (Your ‘control’ approach is the particular way of doing things that proves to be the current best performer.)
So first things first. You need to establish your current ‘control approaches.’ That is, establish the results from the best-performing ad, sales technique, offers, and so on.
Once you find the control concepts or approaches, keep testing to see if you can improve on their performance. Then replace the current control with one that generates a better response. That then becomes the control approach.
From here, if you run advertisements in newspapers or magazine, you can test different approaches, different headlines, different ‘hot buttons’ or benefits, different packages, different rationales, different ways of positioning an idea, different pricing, and different bonuses, as well as different offers. Test different directives to the reader or listener about how to respond and what action to take next.
Test positioning in the front, back, right, or left side of the page. Test mediums against mediums. For example, the results from one week’s responses to your Social Media advertising versus those from one week’s advertising on the Web. Test the television or radio stations where your ads are run.
Measure the number of responses. Then the number of those responses resulting in sales from each specific advertisement.
Then compute the cost-per-prospect, the cost-per-sale, the average sale-per-prospect, the average conversion-per-prospect, and the average profit-per-sale against your ‘control.’ This will reveal an obvious winner—the control you then keep running until further testing gives you another.
All this testing and measuring might seem like a lot of hard work, but consider this:
The cost of an item, a marketing piece, or a technique remains the same regardless of the results.
For example, a salaried salesperson costs the same fixed amount per day, whether they make one sale a day, 3 sales a day, or 4. An ad costs you the same amount of time and money whether it generates 100 leads, 1,000 or 10,000. Testing and measuring means you can LEVERAGE that investment by making sure you get the best possible results. Only then can you maximise the value your business receives from that investment.
Given that, start testing and measuring everything NOW. Now let’s look at various areas that must be tested.
Testing prices is a major source of surprise for most people. Different prices on the same product or service often outperform one another by an enormous margin.
So test your prices.
Remember, it’s not a matter of increasing prices, rather testing them. And testing can be done without your customers ‘batting so much as an eyelid.’
For example, a hotelier was advised to increase his prices. He didn’t like the idea at all and rejected the ‘ridiculous’ idea. “I’ll lose all my customers,” he said.
So they did an interesting test. The hotelier had some slow-moving items that represented approximately 30% of his $450,000 turnover. It was agreed, as a test, that prices on those items would be increased by 10%. Of course, the results were measured.
The result? No decrease in sales of the slow-moving items at all AND an extra $13,500 on the bottom line.
Of course, the hotelier would not have realised that gain had he not be willing to test. Imagine the opportunities you could be missing out on if you’re not testing!
Test, measure & compare all your marketing pieces
Again, what you can measure you can manage.
This concept is extremely simple. Unless you measure the results of your marketing, you’ll never know how well it’s working.
But simple as it is, very few business owners or managers measure anything, let alone test it. Instead, they rely on their own intuition about what is working and what isn’t.
Testing headlines & space ads
Headlines are the most important element in any advertisement. Therefore, it’s important that you know the effect of a different headline on one ad versus another.
Testing new approaches for salespeople
If you have salespeople, it’s a good idea to take 2 who have a comparable size or demographically balanced territory. Have salesperson A present a package, product, offer, price, and so on in a certain way for a set period of time. Have salesperson B present the same thing, only change one variable.
One great example of the value of testing comes from Steve Houghton, a supplier of a personal alarm.
Steve used radio advertising (advertising that he got on what’s called a ‘per inquiry’ basis—more about that later) to test different approaches, different prices, different commercial lengths, different words, and even presenters of different sexes.
For example, he found that changing from a male voice to a female voice in the commercial doubled his sales. He found that moving from a 60-second commercial to a 45-second commercial, with a 15-second ‘tag’ played later in the break, doubled his sales.
Steve made over $1 million in additional sales by exploring all the possibilities. In fact, when testing what price he should charge for the alarm, he discovered that the alarm he was barely selling at $9.95 per unit sold like hot cakes at $39.95 per unit!
Lifetime value: a final point
Measuring and testing are absolutely necessary to maximise the potential of every aspect of your marketing. You can (actually, you must) test the following:
Ad Size, Copy, Offers, Price, Gender, Demographics, Colours, Graphics, Packaging, Scripts, Headlines, Guarantees, Placement, Timing, Words (phone)
When measuring the results of your ads or marketing pieces, it’s not enough to simply count the number of people who respond. The quality of the response is just as important. In other words, a lot of people may inquire, but how many of them buy?
In fact, it even goes beyond the number of people who buy a particular product. What you really want to know is how much a customer is worth to you, in dollars and cents, over his or her lifetime.
This figure is called the ‘Lifetime Value’ or ‘Marginal Net Worth’ of your customer.
Lifetime value works like this: Let’s say you run an ad for $4,000 and 100 people respond. Of the 100, 20 people actually buy from you and they spend an average of $450 each. Also, say that after production and distribution costs are subtracted, $210 of the $450 remains as gross profit per sale—or $4,200 total gross profit (20 people multiplied by $210 each). Your net marketing profit, then, is $200 ($4,200, minus the $4,000 you paid for the ad.)
This may not seem like much profit, but you need to look further.
Let’s say you know from experience that, after making an initial purchase, each new customer will buy from you an average of 3 times over the next 2 years. And say you know that the average profit per sale will be $300, which is reasonable if you’re successful in your follow-up or ‘back-end’ marketing. (‘Back end’ is the sales you make after the initial sale.)
So the 20 new customers you acquired from the initial ad will, in turn, bring you not just $200 in profit, but $18,200! (The $18,000 comes from $300 per ‘back-end’ sale multiplied by 3 sales multiplied by the 20 customers.)
Thus, on a per-customer basis, each customer costs you $20 to acquire ($4,000 for the ad divided by 20 customers), brings in $10 profit on the front end, and $900 profit on the ‘back end.’
This kind of information is invaluable! And puts the cost of that advertisement into perspective, doesn’t it—it certainly seems worth doing!
In fact, the lifetime value of a customer is a critically important factor in any business. Put simply, unless and until you know what it is, you have no idea how much to invest in your marketing and advertising to create a new customer.
And the catch—you can only find out by testing and measuring!
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