Do the Marketing Math for Your Online Business

Let's say the goal for your online business is to generate $1,000 in cash every month. Given this goal, how much should you invest to market your site? Or do you just spend what you can and hope for the best? Unfortunately, too many people I talk to are not doing the marketing math to realize that hoping is not enough.

Let's do some easy calculations to understand why.

First you need to answer a few questions:

• How much money do you make per order? Just multiply your profit margin by your average order size and this is how much you'll make per order. For example, if you expect to make a 50% profit on every order and your average order is $100 then you'll make $50 per order.
  

• What's your website conversion rate? Don't expect more than one out of every 100 visitors to place an order. An order could come from someone using your online shopping cart or seeing your phone number on the site and calling in their order. Either way, it means you have a "conversion rate" of 1% (1 order out of 100 visitors) which is pretty typical these days. And when you're first starting up, your website conversion rate could be a lot less than 1%.
  

• How much are you paying for each website visitor? Whether you advertise using paid search or banners, you want prospects to "click" your ad and come to your website. To keep things simple, let's assume you pay Google $2 for each of these clicks. This means your cost per website visitor is $2. (Generally speaking, you should expect to pay Google $2 to $4 per click)

Now we're ready to do the math:

1. Cash goal: $1,000 (my example)
2. Profits per order: $50 (per our assumptions)
3. Orders needed: 20 (20 orders * $50 profit = $1,000 cash goal)
4. Conversion rate: 1% (1 out of 100 visitors will order)
5. Number of visitors required: 2,000 (20 orders / 1% conversion rate)
6. Cost per visitor: $2 (cost per click)
7. Marketing spend needed: $4,000 (2,000 visitors * $2 per visitor)

Once you've figured out the math you'll come to an important conclusion: in my example, you have to spend $4,000 on marketing your website to generate $1,000 in cash. What's the bottom line? You'll actually lose $3,000 every month!

Or said another way, it's almost impossible to make money paying Google to drive traffic to your website. Does this mean that all is lost and you'll never make money with your online business? Of course not! There are a number of ways to more cost-effectively market your site than handing over every dollar to Google.

For example, search engine optimization can help you generate natural (free) search traffic to your website. You can also submit your site to online yellow pages and directories that make it easy for prospects to find your business. And when you make your first customers happy, they'll become a "volunteer sales force" and tell everyone to come check out your site!