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Example: you are running a Campaign with PPC Search Engines to promote your business. You pay 0.05$ per click and achieve 300 clicks a month. Your corresponding recurring costs of 15$ a month are already considered in your budget. Your conversion rate may be 1%, so you expect three sales per month. If you get 8$ per sale, your monthly earnings are 24$ a month. This means your profitability is 25% (24$-15$) / 15$. For every advertising dollar you get 1.25$ sales.
The total profitability of your business will be lower, since you need to consider
total cost and not only PPC marketing cost.
The problem may consist that at beginning you will not know conversion rate of your campaign, so you will need to work with estimations. Once you have real numbers, review your estimations based on that numbers. Your Budget will get more and more accurate, more data you can provide.
5) Now you can build your Budget based on Costs and estimated earnings month by month.
You may decide to ?reinvest? part of your earnings and increase your marketing spending month by month.
It is time now to put all data into your Calculation Sheet. Start building columns, one column per period (week or month). Per each period, reserve two columns, one for your budget and one for your ?actuals? (your real numbers).
Divide your rows in ?Earnings? and ?Costs?, subdivide them in several rows for your earnings (in case you are working with multiple programs, reserve one row per program) and one row per each cost element identified in steps 1-2.
Reserve a Row for a sum of all your cost elements (per period) and a corresponding row for sum of all your earnings (per period). At end, add one Row with difference of your earnings minus your costs.
Now you are in position to see period by period, what is ?net result? of your business. You will see immediately if you are earning or losing money.
As already mentioned, it is absolutely normal that in your first months (or years?) you will have more costs then earnings. This is case for every business. However you should be now in position to ?predict? when your ?break-even? point will be reached (total earnings = total costs, per period). You may decide to invest more in marketing activities if they seem to be profitable, or save costs by reducing your recurring expenses.
6) Review your budget on a regular basis. The more data you have, more accurate your budget will get. Calculate period by period your conversion rate and monitor results of your marketing activities. Put results back to your budget and create new Budget ?versions? for that purpose.
7) Now run your business! Your Budget is now a powerful instrument to give you a good financial basis if you are on track or not. Some people have tendency to oversee spending and overestimate earnings. If you feed your budget with real data, it will give you an instant view of results of your entrepreneurship! Most of CEO´s of world are doing exactly that. Of course financial aspects are important, but can not replace your Vision and Strategic thinking. But it can ?bring you back to earth?, if your strategy and vision is too ambitious, but can not be financed.
Alex Timaios is an international Marketer, specialized in Home Business and Residual Income generation. He runs the websites www.101homebiz.com and www.101workathome.biz
