Business Plan Guide
Calculating your cost per sale
If you paid $25 for an ad and generated a total of 213
subscribers to your newsletter the calculation would look like this:
$25 / 213 Unique Subscribers = 11.7 Cents Per Subscriber
This means that you paid $25 for your ad and you generated 213 subscribers to
your newsletter at a cost of 11.7 cents per subscriber.
This is a good response and is typical if your lead capture page is setup
properly. If you are paying more than 50 cents per subscriber you should tweak
and test your lead capture page to get the cost per subscriber down.
This isn’t a universal rule because every business is different and has
different “acceptable costs” when it comes to leads. If you sell yachts you may
be able to pay $100 for a lead. Just make sure to decide what your acceptable
cost is for generating leads because if you don’t make that cost you know you
need to refine your lead capture page. This calculation the second in the
series of four calculations you are going to learn.
This profit calculation that you are going to learn is how to calculate the cost
per sale. This is where there rubber meets the road and you actually start
seeing money come in from your ad so this can be exciting.
You need to make sure that you track your sales via an ad tracking program so
you know what ad produced the sales. As for promoting affiliate programs and
tracking profits, make sure you signup for a separate affiliate account for each
ad. Some affiliate programs have great software that allow you to track
individual ads but most do not so you will have to signup for multiple accounts
so you can use each for a different ad.
This is where you find out the truth about your ad. Was your ad a raging
success? Or what your ad less responsive than you expected and do you need to
tweak your ad?
Whichever it is, you will find out what you need to do whether it be buy more
ads in more papers or work on increasing the response of your current ad.
Much like the first calculations, this calculation is based on the cost of the
ad to get your final calculation and is called
Cost Per Sale:
Total Cost Of Ad / Total Sales = Cost Per Sale
So if you paid $25 for your ad and you generated 5 sales from that ad this is
what your calculation would look like:
$25 / 5 Sales = $5 Per Sale
This means that you paid $25 for your ad and generated 5 sales for a Cost Per
Sale of $5.
This isn’t a bad deal at all. In most products or services you would advertise
in the paper you are making more than $5 profit per sale so a cost of $5 to make
a sale is easily accepted. This would be a success in most products and mean
it’s time to place more ads!
Now it’s time to calculate profit per sale.
Let’s say that you have a product cost of $8 but you sell it for $29, which
means that you have a profit of $21 per sale if it costs you nothing to make the
sale. We know that with the calculation you did for “Cost Per Sale” on the
newspaper ad that you placed that you made 5 sales at a cost of $5 per sale.
Now we are going to look at the formula for determining Profit Per Sale:
Profit Per Sale (Pre Ad) – Cost Per Sale = Profit Per Sale (Post Ad)
So if you have a Profit Per Sale of $21 before advertising costs are taken out
and a Cost Per Sale of $5 for each sale your advertising generates your formula
would look like this:
$21 Profit Per Sale (Pre-Ad) - $5 Cost Per Sale = $16 Profit Per Sale (Post Ad)
This means that you make $21 per sale before any advertising cost is incurred
and after the $5 cost per sale from the newspaper ad is subtracted you are left
with $16 net profit.
Tracking is the only way you have to determine if your advertising is working...
so if you plan to advertise, please track your sales!
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