The Difference Between Cost and Value in Advertising
A lesson all marketing professionals must learn
A lesson all marketing professionals must learn
The one piece of advice I’d give to any marketing professional is to understand the significant difference between cost and value — both inside and outside of work.
Value is when something has perceived importance, usefulness, or monetary worth. It’s also what we give out in our actions and behaviours, and in the choices we’re seen to make.
Practically, as a marketing consultant, I give value to everything. Whether it be clients, brand advocates, customers, or digital and experiential activity.
I crunch the numbers on web traffic, engagement, and shopping cart abandonment to predict how much we’d make with each penny we’d spend. Anything more is a bonus, but it should never be less.
A Lesson for You When Advertising
When starting a business or new venture, people often see the cost and value as aligned. “I’m paying £5,000 for this ad, so I’m absolutely going to make at least £5,000.”
This is false.
I am not a professional mathematician, but I do understand that conversion rates on past activity give people like you and me a scalable indicator for any repeated action.
Every brand advocate or advertiser should be paid on a prediction for ROI (Return on Investment). If it’s out of your budget and you don’t have money to risk, don’t use their service.
Remember: The price is what they want you to pay, not what it’s worth.
Think hard about that next time you buy a sponsored post, advert, or email blast. They want £5,000 to send it to their 5,000 email addresses. Sounds fair, but what’s their open rate?
Let’s say the average is 8%. Now that’s 400 customers who will see those emails, not 5,000. So where you were paying £1 per potential customer, now you’re paying £12.50 per potential customer. Yikes!
If they value their list at £1 per customer, the most I’d be willing to pay them for that email blast or ad is £400. Honestly, that’s its value.
The same works for magazines with huge readerships. It sounds good, but the likelihood is a small fraction of that number will ever see your ad.
By looking at your conversion rate for your website or store you’ll be able to work out how much you’d stand to make from customers seeing your ad. Be conservative. It’s better to underestimate and be pleasantly surprised.
Here’s a Simple Visual Breakdown
You spend £5,000 on a sponsored email blast with an influencer. (5,000 sends)
17% open. That’s 850 people.
10% of that 850 people click through. It’s a good email after all.
Your website converts at 3% on average. That’s 15 sales you’ve made.
Your average order value is £100. You’ve made £1,500.
But you spent £5,000. So that’s a net loss of £3,500. Sorry! It wasn’t worth it.
Know what your products are worth, question the value you’re getting when purchasing advertising, and predict or forecast your ROI — always.
Any marketing activity you do should be unapologetically analytical because: Cost and value are two different things.
This Is Also True for Your Personal Interactions
High-value friends, family, and clients deserve more of your time. You can work this out with Pareto’s law. Which 20% of people will bring you 80% of your happiness, support, and opportunities?
Cut low-value interactions out of your life and business. They only serve to take up 80% of your time and patience for 20% of the reward.