“How To Test The Merit Of A Costly Sales Promotion Idea”

Or . . . Maybe Your Business Does Better Than You Think. Have you sweated over that paraphrase of Shakespeare – “to invest or not to invest”? Many companies invest too little in a sales promotion idea. Others bet the farm. Here’s a way to improve your advertising strategy . . . by the numbers.

Study a profit & loss statement. You’ll discover there is an optimal range of percent for advertising investment – neither too much nor too little – which companies can afford. (Maverick does this calculation for all our customers.) For this article, let’s focus on those that invest too much . . . the gamblers.

Do you feel like an “insignificant loser” when you hear about all those big businesses making zillions? They report huge sales volume gains while your company, no matter if it jumps 10%-20%-30% per year, still seems insignificant?

Take heart. You’re probably doing better than you think!

An enlightening example

Harry C. (we changed his name to protect both the guilty and the innocent) owns Harry’s Hair Replacement in mid-America. Harry returned from a convention of hair replacement professionals in Florida.

Firms at this convention replace people’s hair non-surgically. They can weave you a new head of hair that covers your baldness so well other people are hard-pressed to detect it.

Of course, you go to professionals like Harry after you’ve tried all the new hair-growth gunk on the market and find out it sometimes puts a little fuzz on your shiny pate, but not much else. Now let’s get to the point of this story . . .

Using the newest miracle
cure (ad medium)

Some members of Harry’s group decided to use the sales promotion idea of TV Infomercials to promote their product. They’re a hot fad you know and really sound exciting.

Harry’s industry reports their “leads converted to sales cost” range from $1300 to $1500 each when they generate them through TV infomercials.

Because of that high sales promotion cost, shop owners must charge upwards of $3,000 and more for hair replacement. It also means they pay up to half their sales income back out to advertising media. But not Harry!

Harry thought about using infomercials too. But he opted for the Maverick advertising system instead.

So, what happened? When he completed his own cost analysis, Harry discovered he closes just as many sales with Maverick but sales cost $523 per lead conversion . . . about 1/3 the cost of his “high rolling” associates.

NOTE: If you’re like me, you may gag over a $523 cost to create a customer. We expect most businesses’ cost per customer to run lower . . . as low as a few dollars and yours probably should, too. It depends on the price of your product, of course. However, Harry’s industry is unique.

$523 is very low for his particular product even though it may sound high to you. To give you an idea of the much higher advertising costs for the hair replacement industry, Harry’s advertising runs about 17% of sales. However, his compatriots pay up to 50% of their sales for the same thing.

For most other types of service business (with a few exceptions), Maverick recommends only 6% to 10% of sales.

Since Harry charges only a little less than the other guys for hair replacement, his gross profit rolls in considerably higher than theirs. Understandably, that little win kicks off jig dancing around here. 🙂 In fact, Harry nearly doubles his net profit when he applies good management practice. And Harry never has to bother with the most frustrating aspect of infomercials, which is this . . .

It’s the hidden cost that
gets you every time

Once Harry’s fellow members get a TV infomercial sales lead, they spend hours and cramped fingers dialing the phone to acquire just one appointment.

You know how it is: Nobody’s home. They won’t call you back. The lead is “cold” by the next day. Some don’t even remember they called you at 1 a.m.

By the time those guys sift out the good qualified prospects, they’ve invested a lot. Cost in time (which is also money) and aggravation almost certainly runs more than the human psyche can bear.

So we’re gratified Harry’s sales promotion idea using tested Maverick methods works. We’re even happier it takes minimum time to qualify prospects. Harry has a bit more time for family and friends . . . always good if you want a life.

Now that Harry’s advertising is working so well, he plans to focus on honing down his internal systems. He wants to make sure every customer is absolutely thrilled with his service.

Actually, patrons are already pleased. We know this because several customers who moved away travel from half a continent away for Harry’s services.

The lessons in this story?

There are two, I think.

First Lesson.

You’ve probably surmised marketing types tend to blow more hot air than a blast furnace. I should know . . . being one. (Some part of my time has always included prayerful reminders help me stay anchored in real life.)

Too often, gurus wax poetic about any sales promotion idea they decide is the “newest Cinderella medium” in advertising.

You can get sucked into their vacuous thinking easily. Over the past 30 years, I’ve stumbled on a score of new ad methods . . . none of which panned out as consistently effective ways to get your message out.

When the dust settled, we learned . . . as with these TV infomercials . . . they’re not necessarily billionaire makers. Usually success comes – if at all – only after much tweaking and costly hiring of experts. Some glitch always seems to run up the cost in money & time.

You should NOTE, too, we’re referring to small business operating locally . . . not larger companies that sell nationally. There’s a big difference.

Most infomercials are expensive and produced to run on some form of national network or cable TV. Each infomercial runs so many more times at lower cost than most local companies can afford, it pays for itself more easily.

A local business has a much smaller market. Maverick discovered you can add more cost-effective selling power to your local business with an extra dimension. You incorporate sales points that apply to your local business only.

We call it Value Story. You give it a real “kick in the success odds” when your local ad tells people not only why buy the product, but “why buy the product from your company.” Click here to learn more about Value Story.

There’s a reason why you can’t insert your Value Story into most infomercials. Some company in Timbuctoo produced it and sold it as a blanket document to fit any number of businesses of the same type . . . but none specifically.

Without substantial expensive revision there’s no way such a “blanket” ad would fit your particular business.

The big infomercial successes usually come from ads that sell products nationwide.

For instance, the fabled Joseph Sugarman sold about 10 million pair of his BluBlocker sunglasses nationwide and one sales promotion idea he used was infomercials. However, his infomercials applied to his business . . . and his business alone. They included lots of Value Story about his business.

Triggers: 30 Sales Tools you can use to Control the Mind of your Prospect to Motivate, Influence and Persuade. By the way, Joe’s book Triggers offers some interesting insights into selling. Many of them apply to any kind of selling. Just click on the book picture if you’d like to know more about it. Well worth the price.

Second Lesson.

We hear about people grossing “millions of dollars” worth of business in our industry.

But, how often do they also reveal the “millions of dollars” it costs them to get that business? Is profit still the name of the game?

Caring for each customer one at a time at an effective cost is still the way you get comfortable (if not rich) ultimately. Granted, it’s slow but more sure.

A couple of guidelines

So, next time you’re tempted to go for “one big kill” with a costly sales promotion idea, do two things . . .

One. Look very hard at the idea and refuse to get stampeded before you thoroughly review probable back-end cost compared to front-end rewards. Make sure both look good and then proceed.

Two. Examine your own motives. Are you tempted to change because you’re simply bored? Or is your current sales promotion idea really not working? If you’re bored, take a cold shower and clear your head.

You’d be surprised how often simple boredom causes managers to cut their moorings and sail off into uncharted waters.

I’m continually amazed. Perfectly sane managers engage Maverick methods, go from low or no growth to 10% & 20% sales growth. Then, they abandon their strategy. They abandon their winner on the off chance they might increase to 40% with a new tactic. You’ll see the reason in a minute.

FACT: The average business grows at just about the same yearly rate as our gross national product, 3% to 4%. If yours were to grow at 10%-20%, comparatively such numbers soar into the stratosphere. Above that? I’d plan to wave to our astronauts on your next orbital pass.

Think of it this way. With 10% yearly growth, you nearly double your business in seven years. With 20% increases, you’d more than double business in four years!

Big growth often creates
bigger problems

Here’s the critical question. If you achieved such growth, could you organize and staff to keep up with it?

After reviewing the fallout and carnage from the dot.com boom, some very smart people concluded businesses might achieve yearly increases above 20%.

But they can’t sustain them. Why?

Logistically, they can’t muster the resources . . . especially in qualified people . . . to give the company a firm organizational foundation.

Generally, we use a sales promotion idea to get more customers. As you cast about and entertain some costly ones, remember this. A big mark of business success is not how many prospects you talk with. It’s how many you sell, and then serve so well that those lovely people return for more.

Do you belong to a trade association or have a company with several locations?

You and your managers can learn a whole proven system that eliminates guesswork and increases your success odds mightily. Click here for the Maverick Executive Advertising Seminar. You’ll learn all about it and get a free Speaker’s Kit to show to your group.

As you think about your situation and have a question, click on Got A Question? and we’ll help.

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When the cost of a sales promotion idea is too high, you’ll simply trade dollars. The media win, not you. Give yourself plenty of time to think about a sales promotion idea wisely.

I wish you well.


Rod Rademacher
Maverick Strategy
E-mail us here

P.S. If you’d like to explore more helpful articles for maverick managers like this one about a sales promotion idea, click here for the Table of Contents.


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