We are proud to announce our NEW community destination. Engage with resident experts and fellow entrepreneurs, and learn everything you need to start your business. Check out the new home of StartupNation Community at startupnation.mn.co

Fundamental Marketing: Inside the Numbers

DavidJacksonDavidJackson subscriber Posts: 143 Silver Level Member
edited March 2009 in Marketing
Contrary to popular belief, there is nothing deep, dark or mysterious about marketing. It`s a numbers game, plain and simple.

Fundamentally, marketing comes down to two different sets of numbers:

1. Conversion ratio

2. ROI (Return on investment)

Let`s take a moment to look inside the numbers and discuss their importance.

A conversion ratio is the percent of dividing the number of visitors to your website who make a purchase or perform the desired action to the total number of visitors.

For example, if 100 people visit your site and 3 make a purchase, then your conversion ratio would be 3 percent.

I`m often asked what`s considered a good conversion ratio.

Many marketing experts will tell you that on average, converting between 1-2 percent of your visitors to buyers is a an acceptable conversion ratio.

But I disagree with that "one size fits all" theory.

I believe a good conversion ratio is any ratio that provides you with a satisfactory profit margin for your business. That can be as little as 1-2 percent or less, or it can be as high 5-10 percent or more.

However, only you can determine what a satisfactory profit margin is for your business. No one can do that for you.

Our next set of numbers is called ROI (Return on investment).

The dictionary describes ROI as a performance measure used to evaluate the efficiency of an investment or a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.

For example, let`s assume you spent $10,000 on an advertising campaign that brought in $20,000 in new revenue.

Obviously your ROI would be 100 percent, right?

Wrong. That was a trick question. I calculated your investment ($10,000) to your gross revenue ($20,000). It`s a fundamental mistake that newbies make all the time.

Now if we were talking about horse racing you would have doubled your money.

However, in business, you have to consider what it costs to produce whatever it is that you’re selling and subtract that cost from your gross revenue.

In other words, you have to calculate your return based on your PROFIT, not on your GROSS REVENUE.

Here`s a simple formula to help you remember the difference:

"Profit equals Gross Revenue, minus Cost of Goods Sold" (COGS).

To sum things up, marketing is nothing more than a numbers game. The trick is making the numbers work to your advantage.
David Jackson

DavidJackson3/17/2009 6:52 PM
Sign In or Register to comment.