Contemplating the Cost of Solo AdvertisingWhat do you think about when you calculate the cost of your solo ads? Do you think about costs perclick, per view, per lead, per sale? All of these things are important when it comes to advertising.Sometimes, however, we tend to look at the surface cost of our advertising and forget to look at the netcost of our advertising. Hopefully, the net cost of most of our advertising is on the minus side of zero.Not only must we know what we pay, we must also understand what the cost actually means to ourbusiness.Let me explain. Lets look at advertising costs in the way I understood it explained by a presenter on anEmpower Network training session the other night.
Understanding the Cost of Your AdvertisingThere are a few things we must know if we are to understand the cost of our advertising. These are: Value Per Lead Customer Life Time Value Cost Per Lead Cost Per Acquisition
Value Per Lead (VPL)Figuring out the value per lead in our advertising is fairly simple math.Lets say you pay $100.00 for an advertising campaign and this campaign brings you an income of$3,000.00. From this campaign you get 5,000 leads, subscribers and/or optin members (whatever termyou use). The Value Per Lead or value per email in this case is $0.60 ($3000/5,000). This means thatevery lead you obtained is worth 60 cents.
Customer Life Time Value (CLTV)Now lets look at customer life time value. Lets say that with the same campaign, you had sixtycustomers who purchased a $25 product from you. These are your "front end" purchasers. To figure outyour customer life time value you would divide your total income of $3000 by the number of $25purchasers (60) to give you a CLTV of $50.00 per $25 purchaser. This is a very important number toknow because it helps you to determine how much money you will spend on advertising. In thisinstance, each $25 buyer is worth $50 to you in the "back end" (future sales).You could look at it another way. Instead of every lead you obtained being worth sixty cents, you couldlook at it to mean that every lead you obtained is actually worth fifty dollars (CLTV).
Cost Per Lead (CPL)The next thing we have to ask ourselves is how much we are willing to spend to acquire each $25 buyer.Just because all of our leads were not buyers, it does not mean they will not be in the future. So whenwe are advertising, we can decide how much we are willing to pay for each lead that is worth $0.60 butbrings us a CLTV of $50.00.If we are looking at each lead being worth sixty cents (VPL), we think that we wouldnt want to bespending very much money to get that lead. However, if we think of it in terms of each lead actuallybeing worth fifty dollars (CLTV), our perspective on spending our advertising dollars changesconsiderably, does it not?
Cost Per Acquisition (CPA)We know that the VPL is $0.60 and that each 60 cents gives us the potential for $50.00 (CLTV). So fromthis, we can decide what our CPA will be. Our CPA will be the dollar amount we are willing to spend perlead. To acquire a lead that is worth $50.00 to you, how much would you be willing to spend to get thatlead? This would be your CPA.
Knowledge is EmpoweringWhen you think of advertising, the amount you decide to spend should not only be based on yourbudget or the money you have available to spend, but it should also be based on how much value youget for the dollar you are spending. These numbers are important to know and empower you to makewiser decisions when spending your advertising dollars.
SummarySummarizing, our advertising costs should always be on the negative side of zero. That is, the value ofour advertising should far outweigh the cost of our advertising. Unless you know the above informationabout the cost of solo advertising, you really do not know for sure if you are getting the most out of youradvertising dollar.