Let’s imagine I had a coin-operated Gumball machine that delivered, in place of sugar-coated balls, a steady supply of OK-quality prospects. How much cash would you place in the machine to get each prospect?Now most would say “as little as possible”. This I understand; that’s normal human nature at work. But what if I told you that you are not the only person who was able to use the machine?
You see, behind you are your competitors eagerly waiting to use it once you are finished. Plus, the rules state that you pass to the person behind you when you choose not to enter any more money. So,knowing this, how much would you enter before you decided to pass it to the competitor behind you?
Got you thinking a bit more now?
Great, because the Google AdWords advertising system is very similar to that Gumball machine.And every time you launch your campaign you are figuratively lining up next to your competitors as you all try to attract the same profile of prospects.
Now,getting back to the Gumball experience, the smart person would have done their sums before their turn came up.And while the others may spend too little and miss their turn or spend too much and market themselves out of a business, the smart ones would know exactly how much to enter before they expected a prospect to arrive, and when to pass if it didn’t eventuate.
So let’s work through the steps they would have taken to make them so smart. Firstly, they would have calculated the likelihood of average quality prospects turning into clients.Then they would have a good indication of the average amount of profit (not margin) that each customer was worth.
Calculating customer worth becomes interesting when customers are retained for a long time. They can end up becoming very, very valuable.In these cases, worth can track profits for not only the first sale but right through to an expected multi-year life span.
In markets like these the Gumball machine is ravenously hungry for cash before it yields a prospect as competitors are willing to load up coin after coin to get that one prospect.The same applies when prospects have a high propensity to convert into a customer coupled with a high transaction value. In both of these cases you’d better get used to shoving in those coins to get the growth you need.
The Gumball machine concept is relatively straightforward but I would suggest that less than 10% of Google AdWords advertisers know the number at which they should buy prospects and, conversely, when they should pass to the person “behind” them. Based on my unscientific research over 10 years of online marketing experience I have only come across two clients of ours who, when asked for their “gumball number”,were able to provide it.
The first was a world leader in a very competitive health and fitness arena;the second was a highly successful one-person business in financial services. Both knew the marketing “numbers” of their business down pat. In each case it was – and still is – a pleasure to work with them. So long as we can provide them OK-quality prospect leads at a cost below their “Gumball” number then all remains well in the land of online marketing.
So why do so few advertisers know this number?
One reason could be that those selling traditional advertising never touted it as an effective way to measure performance. “Investing”$1500 on a newspaper advertisement and not being sure if the 10 leads captured that week were solely due to it makes it either a great purchase or a shocker. Whereas online there’s more measurement than you can shake a stick at and determining the exact cost for each prospect captured is possible with just a few clicks of your mouse.
Secondly,as business owners we may have found the whole financial side of measuring marketing performance a bit daunting. If you are in this camp, then this book may help̶Found Money: Simple Strategies for Uncovering the Hidden Profit and Cash Flow in Your Business by Steve Wilkinghoff. You can find it on Amazon here. As a non-financial person myself, I thought it did a great job of showing you the simple steps necessary to create some lasting financial insight with regards to your marketing spend.
Sorry, there really isn’t any good reason to not know your “Gumball number”.
The giant Gumball machine of online marketing is here to stay. And while I relate it directly to Google AdWords, in reality it signifies the complete online marketing space. Your option is to either stand in the queue armed with the right knowledge or take your chances like the rest of them. Personally I would prefer if it was the former. Why not give us a call today if you think this is a good idea too.