Episode 79: Marketing Buzzwords
While listening back to the audio of the last show I realised that I have gone a bit native in the world of Marketing Buzzwords, happily talking about “Return-On-Investment Rates” with no extra explanation as to what that means. So I’d thought I’d do a quick show on explaining this and some of other business/sales/marketing related terms and what they all mean.
Return on Investment
So let’s start with the first marketing buzzword, Return on Investment, or ROI as it’s often known. The bigger the better is what matters when it comes to ROI! What this means is for the amount you spend how much money relatively are you going to earn. So let’s say I buy an advert on a website like Bookbub for $400, then to work out the Return on Investment I need to know how much money I made from this advert. If I sell a hundred eBooks in the week after the advert at $9.99 then with a royalty rate of 70% I will earn $699 in royalties (70% of $9.99 x 100). So for that advert we can estimate the ROI is:
($699-$400)/$400 = 74.75%
(We take the difference between what we earned $699 and the cost $400, and then divide by the cost and express as a percentage – which basically just means multiplying by 100)
I say estimate, as it turns out most of the time it’s actually quite hard to say exact figures. Let’s say some people saw the Bookbub e-mail, but were away on holiday for a month, but bought the book when they returned. Should their purchase be part of the calculation? Certainly! But can you tell if those sales were to do with the Bookbub or were from that couple who you told about your book at that dinner party last night?
Similarly, we may be over-estimating the return. It may be 50 of those sales in the week after the Bookbub promotion were nothing to do with it, but actually that your book was mentioned on a Hipster’s Snapchat story of which you knew nothing about, and all 50 of their fans rushed to buy it. So if we discover that this is the case, then our earnings might be only $349, giving us a negative ROI.
($349-$400)/$400 = -12.75%
Lots of low quality marketers hide behind these kind of issues, which is why it is important to make sure you measure as much as you can so you can get an idea of what is working. As we often run multiple promotions at the same time, it can be very hard to actually apportion sales to the correct source, and in fact there can and often are multiple causes. The couple at the dinner party might have been tempted by seeing the Bookbub promotion but were only pushed over the edge to purchase by meeting you. But meeting you alone might not have been enough without the Bookbub promotion.
Conversion Rates and Funnels
You will often here about talk of “the funnels” or “marketing funnels” and conversion rates. This talks about the idea, as we discussed above, that people generally don’t decide to buy based on one thing alone. If you rush into a station concourse and shout “buy my book” waving it above your head, apart from possibly getting strange looks you won’t get many (or likely any) sales. The people in the station are what is known as a Cold Audience. They don’t know you, haven’t heard of your book and aren’t interested in it.
It’s the same concept online. It is hard to get people who don’t know you to buy your book, at least in one attempt. Let’s say you create an advert that runs on a generic blog site and out of the 1000 people who see it, only 10 people click on the link and of those only 1 person buys the book.
The conversion rate is the ratio of people who buy the book vs the number of people who saw the ad:
1/1000 = 0.1%
The conversion rate of the advert itself in terms of getting people to your site (the click rate) is:
These figures are pretty dismal (though not actually that uncommon). But if we look at the conversion rate of the web page where the advert is sending people:
1/10 = 10%
We might find that the problem is the advert and not our website. Of the 10 people we were sent 1 converted. Of course this may well not be scaleable (and this is an issue with conversion rates) but it may suggest trying different advert types to the same web site might be better.
You can see that actually we do have here what some people would call a Funnel. We get Cold Traffic from the advert, send it to our web page and then from our web page we send them to Amazon or sell direct (with all the issues that involves). It is called a Funnel as in each stage the number of people in the process gets less.
Saw Website Ad -> Clicked On Ad -> Bought Book
1000 10 1
So the “top of the funnel” is the people who see the Ad and the person who bought the book are “at the bottom of the funnel”.
The aim of most business people is to either increase the people at the top of the funnel or improve the rate at which they convert. In the case above, the book seller could look to change which site he advertised on, the text and content of the advert and possibly if this is the best kind of advertising to use.
Using E-mail in your Marketing Funnel
Of course, what many marketers are doing is not trying to do the whole sales process in one go. Let’s say that instead of advertising a book for sale, this author is offering a free short story instead, in return for an e-mail address. Changing the ad copy they discover:
Saw Website Ad -> Clicked On Ad -> Signed Up with E-mail
1000 100 50
Now, these conversion rates are much better, but the obvious issue is that the author hasn’t actually sold anything yet. But he has a conversion rate of 5% in terms of e-mail sign-ups.
Then when he mails his list about his book he gets 3 sales.
Saw Website Ad -> Clicked On Ad -> Signed Up with E-mail -> Bought Book
1000 100 50 3
So the total conversion rate here is:
3/1000 = 0.3%
Still pretty low, but 3 times what the rate was from trying to sell to a completely cold audience in one go. The author now also has a much “warmer” group of 50 e-mail contacts that they can e-mail for free, and possibly sell more to at a later date.
Similarly, if the author has remarketing pixels set up on their website, they can send adverts to those who visited the web site and didn’t sign up. You would expect that again, these are people who are more likely to “convert” than the original cold customers.
Now for those of us who sell on Amazon, we do have some disadvantages in terms of not being as easily able to attribute sales (you can use Affiliate codes but this can be quite fiddly to do), but the principle is the same – either find more people to push down the funnel or increase your conversion rate.
If the advert for the Funnel above only cost $10 then even with the pretty dire conversion rates it would still give a good ROI:
Royalties on books sold = $6.99 x 3 = $20.97
ROI = (20.97-10)/20.97 = 52%
In fact the change from the original direct sales approach to going via e-mail signups flipped the campaign from being a loss to a success. But chances are that the advert would become less effective as you added more spend. So even in this case it would make sense to try and boost the Conversion Rates to get more sales from the customers you are already getting.
What people are starting to do is to make the funnels even longer, with less friction in terms of each step to improve conversion rates. So instead of advertising a landing page or e-mail signup, how about advertising an interesting blog post, then later retargetting another blog post, then an e-mails sign-up and then a long e-mail list and then eventually the sale. But this approach takes time and faith but with Advertising costs ever increasing it may be the way everything goes. But the thing I take away from this is how important it is to try and ensure you concentrate on improving conversions as well as making to people just aware of your book.