How do you know if you advertising campaign is working?  You tested a new medium, now you want to know if you should continue or look for another way to advertise.

To know if your advertising campaign is effective, you only need to know two things:  how much is a customer worth, and how much does it cost to obtain a customer.  An effective advertising campaign is one where the cost to obtain a customer is less than what a customer is worth (leave some room for the cost of time…a dollar today is worth more than a dollar a year from now)

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Quick example…cleaning service:

An effective small business owner needs to be able to think on his feet.  You want to squeeze every dollar you can out of your business, and to do so you need to be able to do analyses on the fly.  You don’t have time to sit in front of a computer analyzing income statements and balance sheets, but you still need to be able to do this to run a profitable business.

The Cocktail Napkin Math series will help you be better on your feet by providing you with tools to be able to make the best decision when you don’t have time to run detailed pro-forma analyses.  They give you the key details to be able to run quick analyses in your head on the fly when you need to make an intelligent decision.  When you can learn to run quick estimates and assumptions in your head, you become a better decision-maker.  Making the best decisons will help you become a more effective leader for your business.

For a small business, direct mail can be a cost-effective way to obtain customers.  This is especially true for a start-up businesses looking for its first sales.

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Direct mail campaigns typically have very low conversions.  If you can gain one response from every 200 targeted direct mail flyers, you’re doing a good job.  And a response is not necessarily a paying customer.  Why is success so low?  Your ad is just one of many that people receive every day in their mail box.  Unless you do something remarkable to stand out from the others, your flyers are getting thrown in the trash along with your advertising dollars.

In order to improve your response rate, you need to provide incentive for people to follow up.  Sending a flyer with your company’s information and a cute slogan is not enough to make a person call.  You might get a response from the people who just happened to see your flyer and need your product/service at that particular time, and if none of your competitors catch their attention first.  But if you send your company’s information and an offer for a free product/service or a significant discount, your flyer will stand out.  If given the choice between two competing companies, most people will choose the company that is offering them something. 

Direct mail can be an effective way to gain your first customer, as long as you offer something that recipients of your mail find valuable.