HOW TO MARKET ONLINE FOR FREE
So you’re a retailer with a web presence and you want to sell online..
You may be asking the following questions:
How much does marketing cost? How much budget should I put towards my online marketing?
Fair questions. Here are the answers:
The cost of marketing is NOTHING and your budget is FREE.
but…how can marketing cost nothing, and how can your budget be unlimited? This is a concept lost on many. Especially those with a traditional business mentality.
Fear not, the explanation is coming – it all comes down to achieving the right balance between marketing spend and product margins…
Before we continue, I’d like to introduce some acronyms:
BEP = Break Even Point
CPA = Cost Per Acquisition
These terms are fairly self-explanatory but nevertheless we will explore them further in an example below. They are key to the concept of free marketing.
WORKING OUT YOUR BREAK EVEN POINT (BEP)
You sell awesome t-shirts.
Each awesome t-shirt costs you a total of $20. You sell them for $70.
This means you make $50 on each t-shirt sale.
Your BREAK EVEN POINT(BEP) is $50.
BEP = PRODUCT PRICE – COST
WORKING OUT THE COST PER ACQUISITION(CPA)
Now lets start marketing…
Continuing the example, you decide to put $100 towards marketing. In this case, lets say you’re putting that spend into Google AdWords.
Don’t worry if you’re not familiar with Google AdWords – it’s not important for this example. For now all you need to know is that AdWords allows you to show up on Google search results and pay when people click through to your website. The cost of a click varies based on a number of factors beyond the scope of this post (Keep an eye on this blog for future posts about AdWords).
Now let’s say that using your Google AdWords awesomeness you are able to pay $1.00 per click to your website. That means every time someone clicks on your paid Google listing , you pay $1. The hope is that of all these people clicking through, some percentage of them will buy your awesome t-shirt’s.
So at $1 per click, your $100 spend will get you 100 clicks through to your website.
Let’s pretend that of these 100 clicks, 5% buy a t-shirt. That’s 5 people.
Right away we can see that you’re making a profit. As we said earlier, each T-shirt sale is worth $50 to you (your BEP), and you just sold 5. That means you made $250 for $100 spend. That’s $150 total profit.
Let’s break it down further. We want to figure out the CPA (cost per acquisition) for each T-shirt based on these numbers. In other words, how much did each t-shirt sale cost you in marketing?
Your CPA is your total spend divided by the number of sales you made from that spend. In this case thats $100 divided by 5 sales, which is $20.
Your COST PER ACQUISITION(CPA) is $20.
CPA = TOTAL SPEND – (TOTAL SALES/CONVERSIONS)
GETTING TO THE FREE PART
As long as your CPA is lower than your BEP, you will make money every time you spend money. In this sense, your marketing does not cost you anything, and your budget can be endless as long as you keep your CPA lower than your BEP.
Using the given example, if we presume that these numbers will hold as we continue marketing, then you will continue to make money no matter how much you spend. In other words, based on this example, you will make $30 every time you spend $20.
In theory, if you were to spend $2000, you would make $3000. If you spend $20,000, you make $30,000, and so on.
What I’m trying to highlight here is that online marketing can cost you nothing if you take an analytic, measured approach. Know your margins and make sure your campaigns are set up in such a way that you can see how much you are spending, what you are getting for that spend and where your problems may arise.
PROFIT = BEP – CPA
In the example above we said that 5% of people who click to your website bought a t-shirt. That number will not always stay the same. It could go up and down. Over time you will gain a more accurate figure. If over the course of a few months you find that figure to be 1% then you probably need to look at your landing page, or your pricing or whatever else could be causing people who are clicking onto your website to refrain from purchasing.
Likewise, in the example above we said that you are paying $1 per click. If this number were to become $5 obviously that changes everything. You would either need to find a way to bring it down, or find a way to increase your on page conversions to remain profitable.
The more you know, the more you make. If you are doing your own marketing online, make sure you’re across all of your metrics and using the principles above, aim to find the balance that allows you to make endless profit. If you are outsourcing your marketing, make sure you are seeing the true outcomes associated with your efforts and that your marketers are focusing on improving the relevant metrics to get you a return on your investment.
Hopefully this article has added some value to your online marketing efforts. If you’re an independent retailer looking for a hand with your online marketing or digital presence, feel free to get in touch with FrontLine Stores – we’re here to help!