Business - How to measure advertising effectiveness

Business: How to measure advertising effectiveness

Advertising is one of those intangible things whose effectiveness can be hard to measure and quantify. As a result it is often one of the first things to be axed from a business budget when times are hard or there is an economic downturn. The ensuing slowdown in business then confirms the fact that it was wise to cut back on the advertising spend.

Research has shown however that businesses that advertise during a recession increase both their profits and market share

It is of course necessary and wise to make adjustments to any advertising budget. But to stop completely would be foolhardy. As the saying goes “Trying to do business without advertising, is like winking at a girl in the dark. You know you’re doing it, but nobody else does”. It is far better to measure the effectiveness of your advertising and cut out what doesn’t work and improve on what is actually getting results. Test and measure, then test and measure again. If you are running ads in a number of local papers set up a simple spreadsheet to track the number of enquiries/sales or whatever it is you want to keep track of.

There are a few simple formulas you can use to measure effectiveness. For example if an advert costs €100 and you get 25 enquiries, the cost per enquiry is €4. If you get 2 sales from those enquiries, the cost per sale is €50. Will you make enough on each sale to cover the cost?

To work out the value of the advertising use the Cost per Thousand (CPM) ratio which basically tells you how much it costs for 1000 people to be exposed to your message. If it’s a magazine or newspaper with a circulation of 10,000 and a full page ad costs €2,500, then the cpm is €250. If a similar publication had a greater circulation for instance 40,000 and the same price ads, then the cpm would be €62.50. It would make more sense then to go for the one that offered the best cpm rate. However if a publication targets a specific niche or demographic rather than just appealling to a broad population, then you should be prepared to pay a higher cpm. Provided of course it’s the market that you wish to target.

There are a number of factors in determining the effectiveness of any advertising campaign. And there are any number of types of advertising campaigns. The important thing is to measure the results and do whatever works. But make sure you do something!

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This is the best article I've ever read, not that I'm biased or anything :)

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Business: How to measure advertising effectiveness