By Mark Jones
As digital marketing allows for very speciic targeting parameters and a host of analytics, it’s easier for marketers to gauge success metrics, like click-through rates or cost per action.
As advertisers seek to improve their rates of return, they can focus on a more narrow subset of consumers who provide higher and higher rates of return. And don’t higher rates of return equal higher sales?
Not necessarily. To get higher return rates, advertisers also may be reducing their prospecting and long-term branding and ultimately their revenue!
Terry Horsley, former VP/marketing (and salesperson) for Sleep Country and Sleep Train, passed along this bit of wisdom about a common pitfall salespeople face that illustrates the paradox.
A first-year mattress salesman made more than $80,000 in sales commissions. With each person who walked through the door, he applied his sales training: ask questions, listen, ask more questions, recommend the right mattress, make the sale. This served him well.
As he gained more experience, he began to see patterns. He could better tell which people were more likely buyers and which were just kicking the bedstead. He focused his efforts accordingly. Targeting the high-probability customers proved rewarding: his close-rate began to increase dramatically. But surprisingly, his pay for the year dropped to just $65,000. What went wrong?
It may seem counter-intuitive, but as this salesman became “smarter,” he made less money, as he inadvertently cut down his sales potential. His increased close-rate was more than offset by his reduced range of prospects, and his real goal of a high salary was sacrificed. As with many new salespeople, he was sent back to training and reminded that everyone is a prospect.
But what about wasting time and resources on all those non-buyers? For Realestate.com, I interviewed one of the top real estate agents in the country, who shared his positive way to look at failed prospecting.
He walks up to an unfamiliar house and asks the owner if she’s planning on selling her home. She says “no” and closes the door in his face. He walks away and says to himself, “I just made $2,000.”
The agent then walks to the house next door and is turned away once again. He repeats, “I just made $2,000.” This happens again and again, until the 10th homeowner finally says, “Yes.” The agent lists the house and makes a $20,000 commission. He again says to himself, “I just made $2,000.”
The agent treated every homeowner as a potential customer and amortized his commission across each of his “failed” prospects. He understood that, without nine door closings, the 10th would not have opened. He didn’t try to guess which homeowner might be listing their home. If he did, he would be reducing his odds of overall success. Again, he treated everyone as a prospect (and also received valuable leads for future listings).
For practical purposes, you can’t target everyone all the time, so the target audience naturally becomes a subset of the population—those most likely to purchase your product. But how small or large should the subset be? And how likely is likely enough?
Location, age, income, sex, interest, online browsing habits, bus routes or past purchases all may be parameters. But as you target more predictable customers, you risk going after an audience that’s too small, too expensive or where there’s too much competition. On the other hand, if you go too large, your advertising may be wasted on too many non-buyers. Where’s the sweet spot?
Translated into marketing terms, the more you focus on your target audience, the higher your close-rate must become to make up the difference. Illustrated mathematically, 10 prospects with only a 60% close-rated yields 20% more sales than five prospects at a 100% close-rate. While it may cost more to reach a broader audience, you must do the marketing math to identify the point of diminishing returns for your product or service. And don’t forget about branding (akin to creating future leads).
Trying to predict audience behavior can lead to missed opportunities. As you determine your target audience and success parameters, consider the salesman’s wisdom: treat everyone like a prospect.
Mark Jones is the president of Jones Advertising. He has nearly two decades of experience advertising Sleep Country USA, Sleep Train, Sleep Experts, Mattress Discounters, Mattress Gallery and Mattress Firm, as well as Realestate.com, Homepages and Housevalues. He can be reached at mark@jonesadvertising.com.