(By Roy Williams) Early in my career as an ad man I encountered a business owner who was hunkered down on a bit of false logic that flummoxed me for a while.
He said, “The Small Business Association says your ad budget should be 5 percent of sales. So that means every ad I run has to generate 20 times what I spend for it. Can you guarantee me a 20x return on investment if I buy what you’re selling?”
On the face of it, that logic seemed reasonable, but I knew it was wrong.
I’d love to say I went back and won that account with dazzling salesmanship and irrefutable logic, but I didn’t. I deeply disliked that man and I didn’t want him in my life, so I never went back. I had seen that he was angry and unhappy, and it appeared he was determined to share those feelings with the world.
I’ll explain why his logic was wrong in a moment, but first I want to encourage you to overcome the notion that everyone can be sold and should be sold. I don’t believe that and never have.
The simple truth is that you have a limited amount of time each month to devote to the maintenance of relationships. When you enter into a business relationship, you’re committing time and devotion to that other party, and you have a limited supply to give. So I’ve always given myself the freedom to connect only with those people I believe are worth including in my life.
I give you the freedom to do the same.
No sales manager wants to hear that, but there it is.
If I had believed the eyes of that unhappy man could be opened, I would have asked, “What percentage of your sales opportunities each month would you attribute to repeat customers and referral customers?”
Most business owners are proud to tell you that at least two-thirds of their customers are repeat and referral customers. Many will name numbers of 75 percent or higher. For sake of our example, let’s assume they said, “65 percent.”
“What percent of your sales opportunities are due to your location and your signage? How much of your traffic is attributable to the fact that people have seen you and know where you are?”
Their answer to that question will be determined by the investment they have made in securing a high-visibility location. Conversely, an in-home service business will usually say “zero” until you remind them that their truck and van wraps are a form of location signage. Then they’ll name a fairly significant number. Let’s assume they said, “15 percent.”
When you have added those first two numbers together — 65 percent and 15 percent — you can have a new conversation. But before we continue, it’s important that you understand that this is not a sales trick.
What I’m about to share with you is genuinely and honestly the correct way to think about advertising.
“This would mean that only about 20 percent of your sales opportunities are the direct result of your advertising, first-time customers who came to you only because of your ads. Does that number sound about right?”
The honest and open-minded business owner will usually say, “Yeah, that sounds about right.” That’s when I remind them of what they’ve always known. “Repeat customers come back to see you because they had a good experience the first time. Referral customers come because someone they believe in had a good experience with you. Repeat and referral customers are the sign of a healthy business.
“Customers who come to you because of your storefront visibility are the reward you get for knowing that expensive rent and expensive signage are the cheapest advertising money can buy.
“Your great sales team and wonderful service are giving you repeat and referral customers. And your signage is doing everything that it can do.
“What I’m offering you does only three things:
“1. It brings new customers into your store for the first time, giving you the opportunity to make them into repeat customers who refer other people to you.
“2. It elevates your name and reputation in the minds of your existing customers, causing them to think of you immediately when they, or any of their friends, need what you sell.
“3. It familiarizes your name and reputation with the referral customer, so that when your customer tells them about you, they remember you and say, ‘Yeah, I’ve heard good things about that company.’
“Getting customers to come back to you is cheap and easy, provided they had a good experience the first time. The purpose of an ad budget is to give you the opportunity to deliver that all-important first experience to new customers. If this is something you’d like to invest in, I’m here for you.”
There you have it. The truth about advertising.
Roy Williams is a regular columnist for Radio Ink magazine. His columns do not regularly appear online. To subscribe to Radio Ink magazine to see all of Roy’s columns and other exclusive content GO HERE.
Roy Williams is president of Wizard of Ads and can be reached at Roy@WizardofAds.com