What Can Be Said About Business Formulas, And Should We Use Them?
For one thing, business formulas and ratios tell you where you’ve been, where you are now, and where you are heading tomorrow and beyond. Wouldn’t you want to know that information as a prelude to getting a good night’s sleep?
Secondly, business formulas give you a way to think about marketing. One horrible mistake made by the uninitiated forager in Internet marketing is not committing to forward planning, 7 options for borrowing money and when to use them or to think of marketing as simply selling something. It would be easy to go to a product source like Surplus Warehouse, pick out a product or two and arrange to add a subject page, a link to your website, or buy banner advertising.
Better you take some time to identify your target market and determine what that market wants to buy, not what you want to sell. Put on your buyer’s pants and shoes and walk around in them for awhile until you are clear what it is the buyer wants and what he will pay for it. You will be led into defining your specific market, maybe taking a survey via e-mail among your representative market prospects. You can prepare a product questionnaire to solicit opinions about product viability, features, benefits, price, etc.
Define your market, your buyer’s profile, and then do some testing of the product or service you wish to sell.
You might test a market by using your website and a pay-per-click service. Opt for a plan with a minimum per-click cost. You might not want to spend more than $100 for your test, so tell your pay-per-click provider what your limits are or he might set the parameters for you.
You can collect from your click provider the e-mail addresses of those who took the time to preview your
website. Email a questionnaire to those addresses requesting their opinion of the site and the offering, including product details and price. If you have 100 respondents, you may have a significant number who will take the time to answer a 10-question survey and e-mail it back to you. No doubt, you will get some intelligent responses and opinions that may influence you to make some significant changes in your message or product that will benefit you when preparing your next Internet offering.
As a highly successful Internet marketer opined, “Target, survey, create, test, promote, monetize and repeat cycle products.” That pretty much says it all. If you choose to ignore any of the enumerated steps to success, you can virtually erase the word “success” from the equation.
Didn’t I open this missive with some reference to formulas or business formulas? Yep, right there in the headline!
Well, then, I want to throw at you a great formula I’m going to borrow from some top guy in Internet marketing. I wish he were my neighbor, so I could bother him with my profound questions. I like what he wrote:
Traffic Required=(Desired Annual Income/365)/ (gross profit per sale x visitors-to-sales conversion rate)
Let’s see how that works out. You sell a $29.00 product, maybe an information packet. You make $20.00 profit per sale. You want to make $50,000 pre-tax in 12 months and 1 out of 100 visitors buy from you (.01).
Divide $50,000 by 365 days (buyers don’t rest on the weekends)=$137 you need to earn per day.
Multiple $29.00 x .01=.29. Divide 137 by .29=472
You will need 472 visitors per day, not hits.
Now, let’s suppose you’re somewhat hungrier for what’s green and you want to reach a gross income of $100,000 per year and you want to sell a product for $250.00. That’s certainly not unreasonable, especially after you have done your market test. Let’s do the math.
Divide $100,000 by 365 days=$274 needed daily
Multiply $250.00 by .01=2.5
Divide 274 by 2.5=110 visitors per day.
Of course, you can enter your own figures into this formula, but be faithful in doing so in order to ascertain
1. The amount of money you want to earn annually (gross)
2. Establish the selling price of your product
3. Determine the number of visitors you must have daily
4. Capture the e-mail addresses to build your mailing list
Now you need to establish a profit, don’t you? You can’t spend all of your money on advertising.
Maybe you can take out $50.00 per product unit for advertising (in your early stages) and fixed overhead. You want to try to double your money with every campaign. The question will be can you get 100 visitors by investing $50.00 per unit in advertising, including banner ads?
On the conservative side, for example, if you have only $15 per thousand to spend for impressions, you can try sending e-mail messages to opt-in lists. It is common to pay .10 to .15 per name for opt-in mailings.
Always look for free publicity services, ezine ads, associate programs, and other options. Whatever you use, track the results of each according to your criteria: Can I get a sale for $.10, $15 $50.00 or $100.00?
One of the most important statistics relating to your business is your Conversion Ratio. What percent of visitors buy from you? Of course, you need to get the number of your visitors. Some programs will give them to you. You can always add a hit counter to your web site.
Add up your visitors for 4 months. Total the number of sales you had for the same four months.
Your Conversion Ratio=Sales/Visitors. Example, if you had 100 sales and 5,000 visitors, divide 100 by 5,000 and you have a .02 or 2% conversion ration. That is a very good conversion ratio. I hope you do that well.
The formula and ratio I have provided you in this missive are basic and fundamental, and should be employed in your business to give you an effective measurement of how you are progressing in your Internet sales. So much more can be said about the subject of formulas and ratios, but a little math can provide a mountain of benefit when you are trying to steer the ship of commerce.
Best wishes to you and your Internet sales adventure.