How to Measure Your Small Business’ Advertising Effectiveness

Measure your advertising effectiveness to see which source works best for you.

How to Measure Your Small Business’ Advertising Effectiveness

A customer who knows little about your business won’t purchase your products or services. Public relations campaigns can help get you noticed, but effective advertising is critical for most businesses. Effective advertising means more than spending large amounts of money on various advertising media.

Your overall goal is to receive a real, measurable return on your investment. Another important goal is to analyze the effectiveness of different types of advertising.

Measuring advertising effectiveness can be done with these methods:

Return on Investment. ROI offers a numerical method to determine how effective your advertising is.

Here is the formula:

ROI = Net Income / Cost of Investment x 100

Net Income = Total Revenue - Total Expenses

Cost of Investment = Fixed Costs + Variable Costs

The result is a ratio. The higher the ratio, the better the return. For example, let’s say you decide to run a new direct mail campaign. You print 4,000 postcards and mail them to potential customers, with your costs totaling $1,000. As a result of the campaign, you generate $10,000 in net sales. With a simple calculation, you can compute your ROI:

First, you calculate your Net Profit: $10,000 - $1,000 = $9,000

Use the ROI formula: $9,000 / $1,000 = .90 or 90%.

Many financial factors can affect your ROI, including offering product discounts and operating costs.

Measure Your Advertisement’s Reach

While some forms of advertising can be challenging to measure, most digital advertisements have metrics built into them. Staying on top of your metrics with Google Ads, social media, and websites will allow you to measure the success of your efforts.

Data such as traffic, bounce rates, impressions, cost per click, and customer acquisition costs all come together to tell an advertising effectiveness story.

Effective Frequency Rate

Effective frequency is how often a viewer needs to see your message before acting. This is a delicate balance because over-advertising will turn off potential customers, while under-advertising is equally ineffective.

In addition to determining the right ad frequency, this measurement helps determine the correct media mix.

There are many variables in determining how many times a consumer should see your advertisement per purchasing cycle. Some things to consider include:

  1. How long your purchasing cycle is. (A nail salon has a typical purchasing cycle of two weeks, while a car dealer’s purchasing cycle can be several years).
  2. Your market size. The larger the audience, the greater the ad frequency.
  3. Boldness of your ad. If it is a softer ad, run it more frequently. Bolder ads can be shown less frequently to prevent burnout.
  4. Customer Opinion - If your ad’s metrics indicate it’s well-received, it might benefit from appearing more frequently.
  5. Channel coverage - Running an omnichannel campaign and showing your ad (or similar ads) across multiple channels can overload viewers. In these situations, your effective frequency rate might be lower than if you were advertising on fewer channels.
  6. Campaign duration - Longer campaigns benefit from a lower frequency rate than shorter ones.

Set and Track Goals

Advertising goals are a must for a well-run campaign. Well-crafted goals also come together and create an advertising strategy. Establishing specific campaign goals and correlating Key Performance Indicators (KPIs) will allow you to determine the effectiveness of your advertising.

For instance, if an advertising goal is brand awareness, tracking brand mentions or favorable opinions as KPIs helps provide a measurement. Your advertising is effective If your campaign meets the objectives and goals as measured by KPIs.

Return on Ad Spend (ROAS)

The ROAS formula is more directly linked to advertising success than the ROI. The key pieces of information you need to calculate your ROAS are:

  1. The amount of revenue brought in from advertising campaigns, known as Conversion Revenue
  2. The amount of capital spent on advertising for your campaign. This number can include not only the advertisements but also any associated fees. This is known as the Advertising Spend

ROAS = Conversion Revenue / Advertising Spend

A ratio of 4:1 or higher is considered acceptable. For example, a $10,000 conversion revenue divided by $2,500 ad spending would yield a 4:1 ratio.

Using methods of tracking advertising effectiveness will make your ads more effective. Through tracking, you will better understand the strengths and weaknesses of your advertising campaigns. You will also be able to evaluate what methods and media best suit your customers. As your advertising evolves through tracking and fine-tuning, it will become more efficient.

References:

https://www.techtarget.com/searchcio/definition/ROI#:~:text=How%20do%20you%20calculate%20ROI,Cost%20of%20investment%20x%20100.

https://mailchimp.com/marketing-glossary/roi/

https://www.marketingevolution.com/knowledge-center/measure-advertising-effectiveness

https://www.marketingevolution.com/knowledge-center/measuring-advertising-frequency-effectiveness#:~:text=Effective%20frequency%20refers%20to%20how,an%20increase%20in%20brand%20equity.