T X C X A = S

Many people are confused about the purpose of advertising and think that it is to directly generate sales. That view misses the key element of “conversion”.

The purpose of advertising is to create “traffic”. There are several things that have to take place once you have the customer paying attention to your message in order to “convert” the interest into a purchase (this is where creating attractive expectations comes in).

(Traffic) X (Conversion Rate) X (Average Sale) = Sales

When sales are up or down, one or more of these three factors has changed. When you want sales to rise (who wants them to fall?) you need one or more of these factors to rise and for it to rise more than any offsetting decline in one of the other factors. (Think about increasing conversion rate with a special offer that does not produce enough extra orders to offset the decline in average sale resulting from the offer and you will understand what I mean here)

When your sales are up or down, are you checking to see whether A: You put your message in front of more or less people, B: A higher or lower proportion of the people you reached chose to buy, or C: The people buying spent more or less? If you do not know the answers to these things you may be drawing mistaken conclusions about why your business is up (or down).

A business should be aware of which of these factors it is trying to impact with a strategy and figure out how to measure it.

I can create a hypothetical ad campaign with a 2% conversion rate and put it in front of 1000 consumers generating 20 orders. If I place it in front of 2000 consumers it will probably generate 40 orders etc. Whether that is worthwhile or not depends on two things: the average order generated and the cost to place the message in front of the consumer. In this example, the number of consumers I get in front of is “traffic”.

Assuming the same average sale, if by choosing where or when I place my ad I can raise the conversion rate from 2% to 4%, I can generate those 40 orders from getting in front of only 1000 customers, I could well afford to pay more do so than for 1000 in the first example. Whether I paid more by producing a bigger ad, a better ad or using a more expensive media or for a refined list or placement does not matter. What matters is how many conversions obtained for how much $$. For this reason the value of getting in front of a group of consumers can not be calculated until you can measure the conversion rate.

Is it possible to spend thousands of dollars getting in front of consumers who are not interested in what you have to offer? Is it possible to do such a poor job presenting what you have to offer that you fail to attract conversions? Is it possible to reach consumers at a time or place where they are unable or uninterested to act on what you offer? Absolutely. We all see it every day.

1st how many consumers are you reaching?
2nd how many of them choose to buy?
3rd how much do they spend when they buy.

Your strategy to increase sales should be targeted on which part of the equation you are trying to change and you should be attempting to measure whether you are succeeding. You should adapt your future efforts based on those measurements.

Thank you for the reminder. There is much wisdom offered in your post.

I like the clarity of how you said this. It puts into simple language a lot of my messages about advertising and marketing. So many people in the business just advertise without a direction. Your theme here gives a place to set goals, and gives four very measurable elements to analyze effectiveness of a campaign.

Thanks for the lesson/reminder/refresher. Very good information stated clearly!

:?: :?: 8) :shock: