how to tell if advertising is a good investment

If your small business is considering signing an advertising contract – whether it be to have ads displayed in a magazine, on a website or in an email newsletter – you need to be sure that you fully understand your investment. Oftentimes, people will accept an advertising offer or package as is, without asking more questions about what they should expect from their campaign.

Before you sign on the dotted line, ask the following questions of your advertising opportunity:

1. What is your goal for the advertisement?

You should never, ever jump into any marketing or advertising tactic without a clear goal in mind. Do you want to build brand awareness? Drive people to your website and have them make a purchase? Register for an event? Call you?

If you don’t have a goal in mind, you shouldn’t be purchasing advertising space. Period.

If you do have a goal, consider what you’ll need to see happen as a direct result of your ad campaign to feel satisfied with the investment. This may be a specific number of clicks on your ad, registrants or leads.

Remember to properly calibrate your expectations when setting goals. Unrealistic expectations can make your project feel like a failure. For example, if you are going to run ads in three consecutive email newsletters sent to a small but targeted audience of 1,000 people, it’s unrealistic to think that you’ll earn 500 new leads because of your ads. A more realistic number is much lower, with 5 leads being a more accurate expectation.

If your carefully considered expectations are unlikely to be met by the advertisement, it’s best to pass on the opportunity.

2. How good of a fit is the audience?

Who will be on the receiving end of your ads?

You should already know, at least on a high-level, who the audience will be. Basic demographic information of the audience, like age and gender, is likely apparent without too much digging. This information is almost always supplied by the advertiser in a media kit, which can usually be requested on their website.

But the most basic demographic information isn’t enough to qualify whether the audience is a good fit. You should dig further to learn more about who the audience is. Make sure that you’ll be targeting people who are like your best clients. That way, your advertising won’t seem out of place on whatever medium they’ll be displayed on, and you’ll be able to better capture the interest of readers.

Information about a channel’s audience that will be useful in making sure your ad will be shown to the correct audience includes:

  • Job title
  • Job responsibilities
  • Income
  • Location
  • Education level
  • Interests
  • Purchasing habits

You might find that with further digging, the audience isn’t as good of a fit for you as you initially anticipated. Advertising to an audience that doesn’t mimic your company’s target audience is like trying to fit a square peg into a round hole: it won’t work and will only leave you frustrated.

3. What is the historical user behavior of the audience?

This question is geared more towards digital than traditional advertising, due to the bevy of data available for people using digital devices.

Some readers and website visitors are more engaged than others. For example, visitors may spend an hour every day on a website, while visitors to another website might only visit for five minutes once a month. They might read every email that is sent to them, or never read a single one without ever bothering to unsubscribe (guilty!). It’s important to understand what users are doing when they are looking at the digital channel you’ll be advertising with so you can appropriately set expectations, and possibly even tailor your ad to best serve them.

This information may be available in the advertiser’s media kit. If not, you might be able to request it from them. Not all organizations will be forthcoming with this information, but you should at least attempt to obtain it from every advertiser you are considering working with.

Examples of user behavior data to request include:

  • Average time spent on the website
  • Average pages visited per session
  • Frequency of website visits
  • Number of clicks
  • Open rate (for email advertising) *
  • Click through rate (for email advertising) *

*To give additional context to these rates, make sure you know the size of the email list

4. Is it cost effective?

Alright, let’s talk dollars.

First things first: forget about the total cost of your ad package for a moment. The total cost isn’t what you should be zeroing in on to determine if this investment is a good use of your money, whether it’s $100 or $100,000,000 (look at you, Ms. Moneybags!). The useful information is hidden in some smaller numbers.

Let’s say you’re interested in a $10,000 digital advertising campaign. Your ads can be splashed on the homepage of a major industry website for a month. Should you do it?

We’ll assume that you’ve vetted the opportunity and found it is a good fit. If your goal is to earn 10 new customers, and your company has a conversion rate of 20% (that is, 20% of new qualified leads end up becoming customers), you’ll need to generate 50 leads from the campaign to meet your goal.

How much is one new customer worth to your company? This may vary wildly depending on your offerings, but find an average. Let’s say a new customer is worth $750.

If you earn 10 new customers at $750 a piece, you’ll have earned $7,500 on a $10,000 purchase. That’s a pretty dismal return on investment.

Now, if your typical customer makes repeat purchases, let’s say spending $2,000 a year, you’ll earn $20,000 on your $10,000 ad purchase over the course of a year. That’s more like it.

But why stop at calculating how much you earn from a new customer over only a year? If your business tends to retain customers, calculate the lifetime value of a new customer. Knowing the lifetime value of a customer will help you better understand how to allocate your resources for advertising and other marketing expenditures.

You might be thinking that your goals are too low, making the math seem like the advertising campaign is a bad investment. Fight the temptation to simply increase your goal to come out on top. It will make the ad buy seem like a great idea now, but assuming your goals were created based on realistic expectations about what could be generated through the ad channel, it will most likely leave you disappointed and in the red after the campaign has ended.

A word on advertising costs: they aren’t set in stone. Keep this in mind if you find that an opportunity is just a bit out of reach. Having someone experienced in negotiating purchase ad space on your behalf will pay dividends, as they can work on your behalf to make sure you can afford that perfect ad spot (within reason, of course; don’t expect to get $6,000 shaved off a $10,000 opportunity).

5. Are there alternative advertising options that will offer a more effective way for you to reach your goals?

If after reviewing the questions above, you realize that the ad purchase isn’t a wise investment, it doesn’t mean your advertising dreams should be tossed. Where there’s an advertising budget and a goal, there’s a way.

Instead, consider alternative advertising avenues.

For example, a client of mine was recently offered a very targeted – but very expensive – ad package that would run display ads on an industry website. After crunching the numbers and considering their goals, they realized they couldn’t justify the cost.

As an alternative, we recommended setting up a Google Display Ads campaign that would display the same ad they would have run on the industry publication website to people who had demonstrated interest in their industry. Not only did our option reduce the cost of the campaign by half, but it also gave them increased control over the campaign.

Whether you choose to research similar publications or look to a completely different channel, don’t be afraid to deviate from your original plan. You may find that a much better opportunity awaits.

The purpose of these questions is to help you feel confident that the investment you plan to make is a good one. While it may be disappointing to realize that the advertising campaign you’ve been planning on doing won’t be effective, you’ll be better positioned to find another ad channel that will help you meet your goals.