A Little Math Can Make You More Money

I have a love affair Sharon is VERY jealous of… with math.

And I’m not talking about the kind of “slap-your-own-forehead-it-makes-my-brain-hurt” stuff you were thrilled to be done with after high school or college…

I’m talking about simple formulas which reveal valuable patterns most people just don’t know about.

Let’s start in the real world before we talk marketing.

The intensity of magnetic fields fall off in inverse proportion to the square of the distance between you and the source.    So, for example, a computer you keep two feet away from you exposes you to 1/4th the magnetic field of a computer one foot away.  A similar rule applies to any leakage from your microwave oven, by the way,  so you might want to take one painless step back next time. (The field is nine times less intense at 3 feet than it is at 1 foot, if you follow the math)

Knowing a little math can give you a BIG impact for a LITTLE effort.

Now,  here are some ways to make math pay off for you as an entrepreneur:

1) Every sales process in search marketing has a natural period of statistical stability.

This is usually the time  it takes to get 40 to 50 orders, but almost never less than one Calendar Week (even if you get hundreds of orders per hour).

In most markets, it’s meaningless to say “I get X orders per day”, because it depends upon the day of the week, the month of the year, etc.  And if you’re in a slow traffic market, it may take months before your sales stability period is obvious.

How is this useful?

Most marketers I know check their orders every day.  They’ve got email notices coming to them from several places (their shopping cart + authorize.net, for example), and they log into their accounts daily to tally their sales.

Some panic when sales are down for a day (or a week, or some other less-than-statistically-stable period) and rush to change things.  Others are overly excited when sales are up for the same period, and go out and make unwarranted financial commitments.  It’s not only a distraction, it’s a formula for manic-depression!

You can route your notices through your customer service team, and unless you’re actively testing the system, check your sales at regular intervals approximating your statistically stable period (or at least, no less than half way through).

You’ll be amazed not only at the time, but the mind-space this frees up so you can MAKE SOMETHING HAPPEN INSTEAD OF WAITING FOR SOMETHING TO HAPPEN. (It’s only human to wait for the orders to magically show up in our shopping carts… part of the entrepreneurial fantasy online, but definitely an obstacle to overcome)

2) The ultimate measure of a PPC ad’s success is NOT click through rate or conversion, but “profit per impression”.

Ever done a split test where the winner had a better click through but a lower conversion?  In fact, the very nature of increasing click through rate carries with it the risk of decreasing conversion because you’re getting people who were ambivalent about clicking before to click!

So how do you choose the REAL winner when CTR and CONVERSION go in OPPOSITE directions?  Figure out which ad makes more money every time it’s shown!  Common sense, right?

Profit Per Impression =  (Gross Revenue – Advertising Spend) / Number of Impressions

It can be a little tricky to pull this data out of Adwords, so I built a free utility and an explanatory video/spreadsheet to help you: please watch this Super Split Testing Video if you haven’t seen it before.

3) A search stream’s propensity to fill out a survey form is directly proportional to their likely willingness to opt in to a mailing list which promises similar benefits, and inversely proportional to their ability to meet their needs elsewhere in the market.

In other words, if you can get people to take a survey off of your PPC ads, there’s a damn good chance this same traffic stream is going to be interested in opting in to your list, and you may have found a “market gap” your competition has overlooked.  (Because if they could get their needs met elsewhere for free, or for a fair price, why would they bother with your stinkin’ survey?)

Surveys can work magic in marketing, not only from the content of response, but from their statistical behavior too.  (I’ve consistently found in my own experiments that a survey of less than 3 questions will have approximately the same take rate as the opt in form I install later on.  Since there’s a direct relationship between number of sales and number of opt ins, I often find surveys, when done on a keyword group by group basis, to provide a kind of “realistic heat map” of what my likely cost per sale is going to be, though this is admittedly less predictable than the opt in percentage).   You can learn all my advanced survey methods in the Hyper-Responsive-Club of course.

4)  The total value of inventory in a given search market can be roughly estimated by it’s total search volume x average bid price.  When you take the square root of this result, you correct for extreme examples and create a roughly accurate metric to compare market to market.

There are two concrete benefits to this formula.

First, you don’t want to go fishing in a pond without any fish in it right?  It only makes sense to compare market inventory values before you stake your ground.

Second, a variation on the formula is (Inventory x Average Bid x 35%) — without the square root.  Assuming 65% of searchers never click a PPC ad, this gives you a very approximate value of the PURCHASED search inventory.   COMPARE THIS AGAINST YOUR PPC AD SPEND to see what your “ppc market share” might be, and keep pushing for a higher percentage (while running your business at a profit of course!)

Moving on…

5) 50% of Profits in Most Internet Businesses is Driven by Only 1 in 2,000 Visitors!

Most marketers ignore hyper-responsive buyers.

That means you can make a LOT more money with less effort if you know how to sell to them, even in brutally competitive markets.  This is the math behind Hyper-Responsive customer focus (from my salesletter):

  • THE 80/20 RULE: 80% of profits come from 20% of customers
  • THE 80/20 RULE SQUARED: you can apply the 80/20 rule to the TOP 20% of customers too.  Without getting too caught up in the math (e.g. 80% x 80% = 64% and 20% x 20% = 4%, etc)… about 5% of buyers drive HALF the profits 
  • THE 80/20 RULE SQUARED ON THE INTERNET: 5% of BUYERS may drive HALF your profits, but only 1% OF VISITORS BECOME BUYERS on most sites.  1% x 5% = 0.01 x 0.05 = 0.0005 … or ONE OUT OF TWO THOUSAND VISITORS

You really don’t have to understand (or agree with) my math in order to make more money with the information right here in this letter because:

  • Whether your a solo entrepreneur on a teeny tiny budget, or a Fortune 100 company with a Billion dollars to spend on advertising…
  • Whether or not you’ve made your first dollar online…
  • And even if you (heaven forbid) decide NOT to become my customer…

If you’ll just entertain the idea that a small percent of special visitors drive a large percent of profits then these 5 Tested and Proven Hyper Responsive Principles… (click here to read the letter)

Now, get out your calculators and make some money!

Dr. G 🙂

PS – Extra credit for anyone who understands this math joke or can share a better one “Q: Why was 6 afraid of 4?”  “A: Because 7 8 9”

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