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What Is A Good Marketing ROI ? (Return On Investment)

When someone asks you, “is your marketing working,” what do you think they’re really asking? Are they asking if it’s generating awareness, generating foot traffic, or generating sales?

When I ask this question, I want to know if your marketing is effectively generating business in a profitable way. That’s really what marketing is trying to accomplish, after all.

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Anyone responsible for spending money to generate revenue (e.g. marketers) should have a simple way to know if their activity is generating business. This is why return-on-investment (ROI) is such an important metric for any business activity.

ROI is calculated using two primary metrics: the cost to do something, and the outcomes generated as a result (typically measured in profit, but for this discussion, let’s use revenue).

There are a few challenges with calculating ROI for marketing activities.

For one, calculating ROI for marketing can be tricky, depending on how you measure impact and costs. Large corporates have complex formulas and algorithms which factor dozens of different variables.

Secondly, calculating ROI manually for each marketing campaigns takes time and access to company financials.

Thirdly, this approach requires patience. It could be months before knowing if a campaign was profitable.

marketing-roi-formula

In a nutshell, calculating marketing ROI the “traditional” way isn’t always practical. We need a better method.

So let’s shelve the complex formulas and algorithms and focus on one simple metric: the revenue to marketing cost ratio.

What Is The Revenue To Cost Ratio?

The revenue to marketing cost ratio represents how much money is generated for every dollar spent in marketing. For example, five dollars in sales for every one dollar spent in marketing yields a 5:1 ratio of revenue to cost.

What Is A Good Marketing ROI?

A good marketing ROI is 5:1. This is middle of the bell curve. A ratio over 5:1 is considered strong for most businesses, and a 10:1 ratio is exceptional. Achieving a ratio higher than 10:1 ratio is possible, but it shouldn’t be the expectation.

Your target ratio is largely dependent on your cost structure and will vary depending on your industry.

Why Use A Ratio?

Ratios are easy to understand and easy to apply. Before any marketing activity is started, everyone understands what it needs to generate to be successful. Also, as long as the right tracking mechanisms are in place, everyone can quickly determine if a campaign was successful or not.

What Is Counted As A Marketing Cost?

When calculating your ratio, a marketing cost is any incremental cost incurred to execute that campaign. This includes:

  • pay-per-click spend
  • display ad clicks
  • media spend
  • content production costs
  • outside marketing and advertising agency fees

Because full-time marketing personnel costs are fixed, they are NOT factored into this ratio. The ratio is meant to give campaigns a simple “pass/fail” test, so the costs factored into the ratio should only occur if the campaign runs.

Why Is 5:1 A Good Ratio?

At an absolute minimum, you must cover the cost of making the product and the cost to market it.

A 2:1 revenue to marketing cost ratio wouldn’t be profitable for many businesses, as the cost to produce or acquire the item being sold (also known as cost-of-goods-sold, or COGS) is about 50% of the sale price. For these businesses, if you spend $100 in marketing to generate $200 in sales, and it costs $100 to make the product being sold, you are breaking even. If all you accomplish with your marketing is break even, you might as well not do it.

companies with higher gross margins (their COGS are LESS than 50% of the sales price) don’t need to achieve as many sales from their marketing before they become profitable. Therefore, their ratio is lower. Meanwhile, companies with lower margins (their COGS is MORE than 50% the sales price) need to stretch their marketing dollars further before it becomes worth doing. Their ratio would have to be higher.

How Do I Calculate My Target Marketing ROI Ratio?

A CMO, CFO, or CEO will be able to calculate your target ratio. They will factor in the company’s gross margin targets, overhead expenses, and what it takes for money to hit the bottom line (the ultimate goal).

Keep in mind a 10:1 ratio is unrealistic, and shouldn’t be the expectation for your marketing campaigns. For most businesses, a 5:1 ratio will be the target.

Final Thoughts On Calculating Marketing ROI

It is not easy to calculate revenue generated for all marketing activity. Certain tactics like social media, content marketing, video, and display ads target users long before a purchase takes place. Marketing software platforms such as Hubspot, Marketo, and Pardot do a good job of connecting early engagement to a final sale, but they are not perfect.

Just because a marketing activity can’t be measured perfectly, it doesn’t mean it shouldn’t be considered. That being said, marketers should always work to connect the dots between activity and revenue. Advances in web analytics software and methodology provide better insight for measuring activity over time and across different devices.

Finally, marketing is about generating revenue. It’s not about art, humor, or creativity. Marketers who aren’t serious about tying their activity back to revenue are missing the bigger point. Implementing a ratio, and treating it as the “golden metric” for marketing activity, will focus the team on the ultimate outcome: growing the business.

How Advertisers Used World War I to Sell, Sell, Sell

Cigarettes, gramophones, even guard dogs. There was nothing that the Great War didn’t provide a good excuse to buy.

world war selling

With Britain’s centenary of involvement in World War I having arrived this week, seemingly every facet of the Great War—its brutality, its cultural upheaval, its still-mystifying origins—has been chronicled in a fleet of new books and essays. One relatively uncharted area of study can be found in The Huns Have Got My Gramophone, a collection of advertisements published in British newspapers and illustrated weekly magazines during the war. (The book, already released by Bodleian Library in England, arrives in America in early fall.)

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The ads compiled in Huns both capitalize on the allure of battle-tested products like Burberry trench coats and Pratt’s motor fuel, and make direct appeals to military families to keep their loved ones on the front well-stocked and occupied during downtime with new goods and services.

“These were images that gave an intimate glimpse into people’s lives and their dreams and fantasies, just like advertising does now,” co-author Amanda-Jane Doran, an expert on Victorian publishing and illustration, explained by phone from Kent, England. “But this was a more naïve, more innocent time. Although advertisers were working hard to get people to part with their money, the whole science of sales and psychology wasn’t as advanced or as manipulative as it is now.”

world war advertising

Doran assembled the ads with Andrew McCarthy, a film director and military historian whose father served as a corporal in the Great War. (Of the diaries and letters the authors mined for real-time impressions from battle, which occasionally double as testimonials to a given product’s usefulness under fire, one of the voices is McCarthy’s father Reginald, born in 1896.)

In Country Life, one of the things I noticed… was that there were a lot of ads for guard dogs

Before television and radio, newspapers were a primary source of news from the front, though newsprint was insufficient to properly replicate the sights of war. “The illustrated weekly magazines had much better photographs and sketches,” McCarthy said by phone from London. “They could print on better-quality paper, and they weren’t tied to a daily schedule.”

The corporations and advertisers who packed the magazines with ads were quick to recognize emerging markets. A month after England declared war on Germany, on August 4th, 1914, the cigarette brand De Reszke had already placed an ad that featured a young woman bidding farewell to a naval officer with the gift of cigarettes.

selling in world war

During the First World War, advertisers seemed to be responding to people’s needs relatively quickly,” Doran says. “In Country Life, one of the things I noticed, being a woman, was that there were a lot of ads for guard dogs. It’s things like that that start appearing throughout the war—obvious and terribly poignant things, such as identity bracelets—that start to be advertised very widely, as casualty lists mounted.

The interesting thing,” she continued, “is that so many of the manufacturers who produced the most eye-catching ads are still in business today. The ads worked. It was an extraordinary time for the advertising industry, but it was an extraordinary time for illustrated magazines, as well, before photography really took over. It shows the power of graphic art.”

Equally striking is the direct and occasionally cunning approach to copywriting. A tagline for Lea & Perrins, for example, offers the promise of “Appetizing meals in the Trenches” and encourages families to send bottles of sauce to the front for a taste of home. “It makes Bully Beef appetizing,” the fine print reads, “and when mixed with jam is an excellent substitute for chutnee [sic].” Likewise, manufacturers of fountain pens seized on the emotional attachment to letter writing. At a time when nearly five million letters were sent from the front, advertisements stressed that it was their leak-proof products that supplied the lifeblood. “Would you not like to be the donor of such a treasure?” the makers of Waterman’s Ideal Fountain Pen implored.

Though the majority of soldiers relied on items in their military-issued kits, store-bought armaments like barbed-wire gloves and wire-cutters also reached the frontlines by mail. “Minimise the Risk” reads the boldfaced claim in an ad for the “Crossman” body shield, a product intended to thwart shrapnel and bayonet thrusts to the midsection. The results in the field were often mixed. “Things like the body shield, sadly, fellow soldiers would laugh at,” McCarthy said, adding that metal used during the war years was substandard and somewhat disposable. (This calls to mind the U.S. Army’s decision, in 2006, to ban the use of commercial armor that had been sent by concerned citizens to soldiers in Iraq and Afghanistan after widespread complaints that military-issued armor was insufficient. The supplements were often equally problematic.)

advertising in world war

Nobody had ever fought this kind of war,” McCarthy continued. “There’d been entrenchments in the American Civil War, surely, and people digging in goes back a long way, but nothing quite like the First World War, where people on both sides of the trenches had to overcome barbed wire, machine guns, and high explosives. A wall of people just sitting around in trenches working out what on earth to do—how do we get past all of this—led very quickly to people thinking of how to improvise. For instance, the British army was not issued with hand grenades at the beginning of the war, so the soldiers would improvise them out of the empty tins that the jam came in. They’d put in bits of nuts and bolts, attach a fuse, and throw those at the Germans.”

These standoffs also contributed to agonizing stretches of downtime, which corporations sought to occupy with new products. The title of Huns, appropriately enough, is derived from an advertisement for Decca portable gramophones that appeared in Tatler in 1918. (Because the amplifiers ran on vibration and required no electricity, gramophones were an indispensable part of life in the dug-outs, and provided comfort to the “nerve-shattered wounded” whose brains were “teeming with the screech of shells and the noise of bombs,” as one officer in charge of a hospital wrote in a letter to The Times.) The Tatler ad, which has a ripped-from-the-headlines quality, highlights a soldier’s remarks printed in the Evening Standard about the loss of personal belongings following a German onrush. “Worst of all,” he says, “the cussed Huns have got my gramophone.”

war

At this point in time, advertising was quite naïve and, in some respects, was almost an adjunct to the editorial,” Doran said. “There weren’t so much of a divide, and the advertisements were often tailor-made for the magazines.”

Despite this alliance, the frequency of ads for newfangled gadgets and time-killers led to the occasional ribbing in the press. To illustrate this point, McCarthy sent along a rarely seen satirical cartoon, published in Punch in September 1915, by “W. Bird,” a pseudonym for the Irish painter Jack Yeats, brother of W.B. Yeats. The cartoon features several panels of trench life enlivened by the arrival of postmarked luxuries from over-exuberant well-wishers. As bombs burst overhead, an entrenched officer idly paints flowerpots with his new paint kit and easel. Another tinkers with a “little pet vacuum cleaner” that “removes the dust from all corners.”

But it’s the most pointed panel in the strip that best summarizes the dead-end course of war, for which no product can provide a detour. A group of soldiers huddle around a package and fawn over the latest distraction from their months of confinement and torturous outbreaks of trench foot—the gift of roller skates.

make money in world war

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A Beginners Guide To Paid Online Advertising

You’ve probably come across the term “online advertising” before in some form or another. It’s sometimes referred to as Search Engine Marketing (SEM), paid channel marketing, or pay-per-click (PPC) marketing.  The terms are often used interchangeably to describe what is essentially the same concept – purchased or “rented” traffic through online ads.

Online advertisement is a billion dollar industry, with digital ad spending worldwide hitting $137.53 billion in 2014 and accounting for one-quarter of total media spending.

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I know, it’s crazy money, right? But the question is, is it effective ?

  • In 2013 the top three video ads generated a total of more than 12 million shares
  • Twitter delivered 400% the revenue per visit in 2013 than it did in 2011: 44 cents versus 11 cents.
  • The average click-through-rate for Facebook Ads has jumped 275% since 2012.

Clearly, paid advertising can be effective.

But we also have to keep in mind that it is only rented advertisement. Once you run out of money to put the ads up, the traffic will stop coming in. Moreover, if you’re not smart about your online advertising, there is a high-risk that you might actually lose money on your investment.

However, online advertisement is also very attractive because it’s measurable, and highly sophisticated with regards targeting. This means that it’s actually possible to calculate both a long-term and short-term value for how much revenue resulted from each and every incoming website visit. And it’s also possible to target a very specific part of your demographic for more effective marketing.

what kinds of online adverting options are out there?

The 2 most popular are CPM and PPC types:

Paid Channel Pricing Models

CPM

CPMs are billed at a flat rate per 1,000 “impressions”. An impression is a measure of the number of times an ad is displayed or has left an impression on a user, regardless if it was actually clicked on or not. You’re not charged additionally for any clicks that the ad receives.

CPMs are usually display ads (meaning that they are visual), but not always.

Strengths:

  • CPM rates are usually pretty inexpensive
  • It’s easy to apply a budget that makes sense for you since you’re paying only for a certain amount of views, which gives you more control over how much you spend.
  • CPMs guarantee that your ad will be shown the number of times that you want it to be seen.

Weaknesses:

Pay per click (PPC)

PPC (also known cost per click or “CPC”) do exactly what they say on the tin: They’re ads that are paid for only when someone actually clicks on them. This means that you don’t pay if nobody sees your ads, and even when they do see your ad, you don’t pay unless they actually click on it. These ads are usually shown in text form, possibly with a smaller image.

The price that you pay per click is determined by the marketplace value of the keyword or expression you’re interested in. This is calculated by your ads quality score and the competition for said keyword you want to target.

wpid-adrankStrengths

  • Unlike impressions, clicks are extremely straightforward to track. Someone either did or didn’t click on your ad.
  • You only pay for the clicks you need.
  • There’s less of a risk for overspending on ads that aren’t converting, because you’re only paying for traffic that’s actually directed to your site.
  • You’re able to place budget caps on traffic coming in through large networks (again, so you don’t overspend).
  • CPCs and budgets are modifiable in real time.
  • Well-optimized PPC campaigns can bring in significant traffic.
  • For marketers who track ROI, PPC advertising can be a much more cost-effective way to get traffic than CPM.

Weaknesses

  • Because you’re competing with other advertisers for traffic, this can sometimes cause PPCs to become expensive and unaffordable.
  • But, if you’re not bidding with a competitive PPC, it’s possible that you won’t get any traffic
  • Just because a click didn’t convert to a paying customer straight away, doesn’t mean that they might not become one later on. Attribution models must be able to handle this accurately.
  • It can be complicated, and you really need to know what you’re doing to see an ROI.
  • You might lose money at the start, before you optimize over time.
  • Just because someone clicks on your ads, doesn’t mean that they have any interest in your offer. 50% of clicks on static mobile banner ads are accidental.

Examples of PPC ads on Google:

Examples of PPC ads on GoogleExamples of PPC ads on Facebook:

Examples of PPC ads on FacebookCPA and Revshare

Less common forms of online advertising include CPA and Revshare models. CPA (cost per acquisition) is a model of online advertising where advertisers only pay per lead is generated. Revshare, where you receive a portion of the profits from the client you’re referring.

Retargeting

Retargeting (also known as remarketing) can also be a very effective marketing strategy, but your site has to have a decent amount of traffic (at least 5k visitors a month) in order for it to be effective.

Retargeting works off of cookie-based technology that uses simple a Javascript code to anonymously ‘follow’ your audience all over the Web. The code (or “cookie”), which is unnoticeable to your site visitors and won’t affect your site’s performance, is dropped on each new visitor that comes to your site. Later, when your cookied visitor is browsing the web, the cookie let’s your retargeting provider (Retargeter & Adroll are the popular choices) know when to serve ads. This ensures that your ads are served only to those who have already visited your site, and are therefore more likely to be interested in your offer.

wpid-what_is_retargetingRetargeting can be even more effective than PPC, so it’s definitely an option to consider if you’re website gets plenty of traffic.

How To Choose The Right Ad Network

Choosing the right ad network is tough, and what works for one business, might not work for another. In order to figure out which network will work best for you, answer the following 3 questions:

1 What Are The Available Targeting Options That You Need?

The first step to figuring out which ad network is right for you, is clarifying what are the targeting options that matter most to you.

  • What is most important to you, demographic targeting or interest-based targeting? (or both?)
  • Will this ad network help you reach your target audience with the right marketing message at the right time?
  • Are you marketing towards B2B or consumers?

2 How Does The Ad Network Align With User Experience?

How do you want to be introduced to your target audience? Different user experiences of your ads will result in different amounts of success. So, for example:

  • Search advertising through Google AdWords and Bing is more targeted, and can help you reach consumers based on keywords they’re researching online.
  • Facebook ads allows marketers to show ads that drive awareness about new businesses, services, or products.
  • LinkedIn ads target professionals by interest or job title as they’re browsing through feeds, job listings, or groups.

3 Is The Ad Format Appealing To You?

  • Are the ad formats likely to inspire user engagement?
  • Do available ad formats give your marketing team the ability to tell its story in a clear and compelling way?
  • Do available ad formats align with your brand’s needs?
  • Unattractive ads will generate a negative user experience, costing you time and money. Don’t jump into an ad network because you feel like “everyone’s doing it.” Choose ad products and features that create the best user experience possible.

A Note On Ad Network Reputation:

We all know that the internet is filled with all types of shady and dark corners intent on “playing the system” rather than partaking in it, and it’s best to avoid these when it comes to ad networks too.

If an ad network looks too good to be true, it probably is. ‘Cheap web traffic’ usually has a catch, or won’t give you any decent traffic that actually converts, so make sure that you’re always working with a reputable web traffic partner.

Ad Networks List

Here’s a quick summary of 5 ad networks to give you an idea of what ones will work best for you:

  • LinkedIn: For B2B marketing mostly.
  • Facebook: Ads work like display ads, and are best for top-of-funnel marketing.
  • StumbleUpon: Seriously amazing content that grabs the user immediately.
  • Google Adwords: Offers CPC ads and can be highly targeted.
  • Bing: Similar to Google Adwords, but with less competition.

These are but a few of the ad networks out there that are considered effective, but there are plenty of trustworthy alternative ad network sites too.

Important Paid Advertising Concepts You Should Know

When you’re going into paid advertising, it’s important that you go in with a strategy and a goal in mind. Understanding a few of the key concepts of online advertising is key to creating a strategy that will suit your business.

Behavioral Targeting

Behavioral targeting is when advertisements are targeted at users based on their past purchase activity. For example, you might target a user with ads about invitations for an event after they purchased some save the dates from you (yes, that is exactly what just happened to me!).

wpid-vistaCPC/CTR

The cost you pay per click (CPCs) often decreases the higher an ads CTR (click through rates) is. When it comes to auctioning for keywords or expressions in online auctions, the highest CPC isn’t always the winner.

Day Parting

Day parting is a feature that is sometimes available that allows you to specific what time of theday an ad is to be shown.

Geotargetting

Geotargeting is often used for businesses that are more geographically relevant. Geotargetting allows you to target your advertisements to audiences in a particular country, state, city, or metropolitan area.

Interest-based targeting

This is the ability to advertise to customers with a specific interest or hobby.

Match Types

Keyword match types control which searches or terms will commence your ad.

Broad match will show your ad to a wide audience, phrase match will ensure that your ad is part of a searched expression, and exact match will only show your ad to people who search your exactly keyword.

Quality Scores

Quality Scores are rating on how well your advertisements align with your marketing message/landing page/offer. Quality scores are particularly important to Google, and they reward higher quality scores with lower CPCs (i.e. cheaper web traffic). This incentivizes advertisers to show high quality ads.

Creating Landing Pages That Convert

Regardless of which ad network you choose, to make any online advertising campaign work to the best of its abilities, you need to create some high-converting landing pages.

You don’t want to just have people visit your page, you want them to take some kind of action once they’re there. To do this, you need to create a landing page that’s engaging and compelling enough to convince them to take the step that you want them to!

C = Clear Call to Action

O = Offer

N = Narrow Focus

V = VIA: Very Important Attributes

E = Effective Headline

R = Resolution-Savvy Layout

T = Tidy Visuals

S = Social Proof

Clear CTA

Your CTA (call-to-action) is the button whose job it is to drive the user to take action, so it’s vitally important to how successful your landing page performs.

What makes a great CTA? Value + Relevance. A CTA should make it clear what value you’re offering your prospective customer, and it should also be relevant to your website/landing page (i.e. not generic).

For example, Pet Amber Alert’s CTA is “Find Your Lost Pet Now!” The value = finding your lost pet. The relevance = the idea behind visiting the site is to find a lost pet, and the CTA reiterates that.

wpid-petOffer

An offer is anything you give your visitors in exchange for getting them to take the action that you want. This is usually a discount/coupon, a free trial, a free downloadable whitepaper etc.

Kingsley Judd offers a “FREE brochure” for those who fill in their contact form (and a bonus entrance into a competition just for ticking a box!) The offer is compelling, and makes the payment (contact details) seem like a good deal.

wpid-kingsleyNarrow Focus

The more choices you offer people, the more time they’ll take to make a decision. Make their decision for them by having a narrow focus.

Keep your landing pages simple, and only focus on 1 thing at a time.

This TakeLessons landing page, for example, focuses on one thing and one thing only: Private English Lessons. There is only one choice in the landing page: To request a call from them or not.

wpid-takelessons1Very Important Attributes

You need to convince visitors that there’s a very good reason for them to do what you want, and to do this you have to highlight the best features of your product. It’s important to prioritize that these really are the very important attributes of what you have to offer because you don’t want to add too much information to the landing page – just enough to convince them to want more information.

Right Signature do a fantastic job of this with their “send”, “sign” and “archive” information. These are the very important attributes of the product, and while there may be other attributes, they’re not as vital to the product as these 3.

wpid-right-signatureEffective Headline

Create clear and informative headlines that clearly articulate what your business is actually all about. No one wants to land on a landing page that can’t tell them even the most basic details.

At first glance at this landing page, we know exactly what Rate Us does: They help you understand what your customer really think!

wpid-rate-usResolution-Savvy Layout

People surf the web on all types of different devices nowadays, so make sure that your layout allows for the wide variety of different user experiences by keeping the most essential parts of your message (i.e. the logo, headline, call to action and the supporting visual) in the center top of the screen. This means that even if your landing page is cut off my small screen resolutions, the important information will still be above the fold.

As you can see, Manpacks does a great job of this. All primary information is at the top, and secondary info is pushed to the bottom.

wpid-manpacksTidy Visuals

As with your headlines, you want to make sure that you have one simple visual that your user will see. Unappealing, low-quality, or too many visuals will distract from your message.

Ribbon keep it nice and simple with just one visual to the right of their CTA and headline.

wpid-ribbonSocial Proof

Humans are social creatures, and we tend to listen to our neighbors, friends and strangers more than we do a business. This is why testimonials, reviews and user-numbers are all super effective in convincing others to hop on board!

See how Basecamp combines both a testimonial and user numbers as social proof that their service is awesome:

wpid-basecampConclusion

Paid traffic acquisition is an extremely viable marketing channel, but it comes at a price (literally). Online advertisement can be highly effective in driving short-term traffic, but you should always remember to start small and test out what works for you. Don’t put all your eggs into one basket.

Instead, think of paid advertisement as a short-term way to boost your website traffic, but not as a central strategy. Instead, focus on marketing strategies that will work for you in the long-term, such as consistently providing valuable content, keeping your website updated and easy to use, offering a great product or service, and ensuring that people can find your content through SEO.