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The reality of advertising

Can you measure the results of your advertising?

Envision 100 people coming into your store and selecting one or more items. Then 70 of those shoppers lay down their selections and walk out of your store. Unbelievable? Worse yet, between 20% and 30% of the purchases are returned for a refund! Your store could not likely continue to exist if that happened.

This situation is happening 24 hours a day and 365 days a year as people visit online stores. While some of the bigger online businesses advertise on radio and television, these statistics kind of make you wonder about the results online retailers get from their online advertising.

And then there is the advertising that we as independent retailers do. Advertising appears on your income statement as an operating expense, but unlike other operating expenses, like electricity or water, it has the potential to be a means to increasing sales. Retailers who create a budget for their business often do so with advertising being established as a percentage of sales. In reality they would allow that advertising budget to increase indefinitely if there could be a direct relationship determined between the amount of money spent on advertising and the amount of sales it produces.

So, how do you measure the results of the advertising to determine if you should have more or less dollars in your advertising budget? Or, if you should spend any dollars at all?

There is for many retailers a logic that says you have to advertise because other retailers are advertising. After all, if advertising did not work, they would not be doing it. Right? What if everyone is advertising solely because others are doing it?

When asking some retailers about their determination about advertising, the answer is they look at the cash register totals for insight. Whether the advertising is done with the traditional (television, radio, newspaper, magazines) or with the contemporary (Instagram, TikTok, YouTube, WhatsApp, Facebook, Messenger, text), they look at the register totals at the end of the day when their message is first seen. If the message hits on a Thursday, they look at the sales for Thursday, Friday, and Saturday. A comparison is made to the previous weekend, and the retailer finds that sales have increased during the weekend with the message.

You could call that a success, but what if the message is about an item with a 30% discount? When you look at the bottom line of your income statement and see that your net profit is not more than 30%, you know you are not making money with this item. Look at your average line count (total number of items sold divided by the total number of transactions). If the average line count is less than two, this means that your customers are coming in and, on average, buying one item. This means that no one is really selling anything; they are just ringing up the sale for what the customer came in to purchase. If the customers came in for that 30% discounted item, then why was this store spending money and time to get customers to come in and purchase the item they are not making money on?

Hence, tracking your average line count is important to see if your employees are cashiers or salespeople. Related to tracking your average line count is that of tracking the average sale. (Total dollar sales divided by the number of transactions). Take a moment to calculate what your average sale was for last year. Then perform the same exercise for this year. Is there a difference?

Recently we reviewed these numbers for a retailer who has had a substantial variance over the last three years. The difference between 2022 and 2023 was a drop of over $2.00 per sale. However, in 2024, the average sale is more than $6.00 higher than it was last year. Definitely they are paying more attention this year. The unfortunate statistic shows that if they had paid more attention to their average sale last year, there would have been an additional $120,000 in sales! If your store maintains a gross margin of 40%, that means this store missed out on $48,000 in gross profits!
This writer’s dad used to say, “no sense spending money to get people in the store and have them have to wait on themselves.”

To that point, we look at “conversion rate.” What percentage of people that come into your store actually spend money? Surely, your numbers are significantly better than the statistics we gave with online businesses at the beginning of this article. Conversion rate (numbers of customers entering store divided by the number of transactions) tells you which of your people are actually salespeople.

If you have the employee who is that individual who stands behind the cash register and says to an entering customer, “let me know if you need anything”, their chances of making a sale are going to be substantially different than the employee who interacts with customers in conversation and shares suggestions of what to buy.

Perhaps the two aspects of advertising that deserve the most attention are those of the loyalty or reward program, and the recent addition of premium loyalty programs. The concept of each is correct; it is easier to retain a customer than it is to attain a new customer.

Their downfall with the loyalty or reward program is that the basis is again a discounted price. Spend dollars in the store and receive points based on the amount you spend. The points translate into dollars and you can use that dollar amount on the next purchase. A customer comes in to spend $100 and at the register the employee tells the customer they have $20 in their reward account. Would the customer like to use it? Of course, they would rather give you $80 instead of $100. Even the chain stores and chain restaurants do it this way. But this does not make it right!

Do not have a sale; have an event or a party. Make it special only for those who are members of the reward or loyalty program but quit giving away money!

As for premium loyalty programs, today they are in all kinds of businesses. Perhaps the best example is Panera Bread. Their restaurants feature pastries, desserts, soups, and sandwiches. In the mornings they see coffee shops as their competition.  You can join their “Unlimited Sip Club” for $119.99 per year. This entitles you to order a drink every two hours. If you are staying in their restaurant, you receive unlimited refills. There are multiple additional benefits including free delivery when ordering a meal. This is $10 a month. Compare that price to a couple of trips to Starbucks for a cup of coffee. Panera Break is betting they can sell you some of their pastries and gain you as a customer on a more consistent basis. This is a great example of a premium loyalty program; you pay a monthly or annual fee to receive multiple benefits. Amazon Prime is another example.

You may think that advertising today is much more difficult than in previous years; the years when social media did not exist; when there were not as many television and radio stations. To the contrary, note the words of John Wanamaker, the founder of Wanamaker Department Stores in Philadelphia in 1861. Wanamaker said, “Half of the money I spend on advertising is wasted; trouble is I don’t know which half.” 

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This article is copyrighted by Tom Shay and Profits Plus Solutions, who can be reached at: PO Box 128, Dardanelle, AR. 72834. Phone 727-823-7205. It may be printed for an individual to read, but not duplicated or distributed without expressed written consent of the copyright owner.