Investing in Ads: How Much Does a New Customer Really Cost Your Business?

As you grow your business your big goal is to get more customers, because more customers = more dollars in sales!

investing in ads

If you are advertising and marketing to grow your audience and customer base chances are, you are trying to figure out how to get the most out of your investment. As you have done some research I’m sure you have come across the same results I have. One side says invest heavily in ads (facebook, Instagram etc) and the other side will tell you that you can do it all for free. I don’t think there is a right or wrong answer here. Every business is unique and while some people have a lot of money to spend on ads that isn't the case for everyone. The DIY approach may feel more doable but may also turn out to be seriously time-consuming. So, what’s a girl to do?

To make the most of the dollars you invest and the time you spend working on your marketing and advertising it’s important to spend some time tracking your investment and its return.

Decide on a budget

It’s really important to work with a budget when you’re planning for your advertising because every dollar spent to acquire a new customer impacts your profit. I’m breaking down the numbers for ya with an example using one of the most popular platforms out there: Facebook.

Say you decide to launch a Facebook ads campaign and set your budget to $500. This campaign gets you 50 new customers (sweet!) When you crunch the numbers, you are paying $10 per new customer. How does that number compare to the orders they placed and your business strategy? If you’re product retails for $50 how do you make out? It’s important to include the cost per new customer into your profits. Your $50 order becomes a $40 order when you account for the money spent to acquire that new customer via your ad.

Now let’s take that same budget ($500) the same amount of new customers (50) but apply it to a smaller order.  What happens if we use this same ad budget for a product that retails for $10? Maybe each new customer is only buying one or two items. Is it worth it to break even or possibly lose money to get on the customer’s radar in the hopes they’d buy from you again in the future?

Promotional Discounts

Sometimes you want to offer a little extra incentive to get customers to shop. While this is one way to promote, there are a few things to consider when you decide to go this route:

Are you getting their email in exchange for the savings?

You want to get customers to sign up for your list in exchange for the savings otherwise, you’re just giving money away. I’m big on list building because your email list is a direct line to your customers. If your social media accounts and website were hacked today you could still get in touch with them! Algorithms change constantly and while social media is amazing, you shouldn’t rely on it to be the only form of communication for your business and with your customers.  

How does the discount impact profits?

Let’s say you decide to run an ad for your Instagram followers with a special discount (save 25%) This promotion gets you 40 new orders (woohoo!) If you’re selling an item for $10 you’re immediately giving up $2.50 in profit with your promotion.($10 @ 25% off) What happens when you include the cost of running the ad itself? Add these numbers together and compare that amount with how much it costs you to produce each piece. How do your profits look? Are you still making money?

How often are you running discount promotions?

We’re all familiar with the Gap effect: we see something full price but know that if we wait a day or a week we can snag it for 30%, 40%, 50%+ off. While offering discounts is a great incentive you want to be careful you’re not teaching your customers to only buy from you when you promote. Be as strategic as possible in the timing of your promotions and create a promotional calendar. Having a plan + schedule will help you with your budgeting and give you a place to track results. Come next year you’ll be able to look back and easily make adjustments!

Taking the time to develop a plan and analyze your promotions may feel like just another to-do on your never ending list but by learning what works well for your business and what platforms AND the types of promotions your customers prefer you are setting yourself up for greater success + growth. A simple spreadsheet that tracks your performance metrics for the dollars you invest and new customers you acquire is a perfect starting point.

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