A simple formula can quickly winnow down the wide array of available communications channels. The question of “how you attract attention” is answered by the product of the average number of sales you need to reach your goals and the average revenue per sale:
G = R*N
G is your GOAL — the desired level of gross receipts (total dollars received before expenses) you need to generate in a year. R is the average REVENUE you expect per type of sale. N is the NUMBER of sales; the total number of transactions you need to reach that goal.
The first step in this process is to choose your GOAL. You arrive at this number by adding your annual expenses and your desired profit. This is a constant number — it remains the same all year long.
Let’s assume that you need to ring up one million dollars in sales in order to cover all your expenses and take home a profit that makes you happy. In this case, G = $1,000,000. The kind of business you create dictates how you reach your goal. (The numbers we're using have been significantly simplified to make the math easy and allow us to focus on the formula.)
- Harry’s Hamburgers — Harry sells burgers in a fast-food setting. Harry needs 100,000 sales that average $10 to reach $1 million in revenue.
- Sam’s Steakhouse sells steaks in an upscale setting, and offers a full bar and extensive wine menu. Sam needs 10,000 sales that average $100 to reach $1 million in revenue.
- Betty’s Beef, which sells wholesale beef to grocery stores and restaurants like Sam's Steakhouse and Harry's Hamburgers, needs 1,000 sales that average $1,000 each to reach $1 million in revenue.
- Carrie’s Cattle, which sells herds of cattle to wholesale butchers (like Betty's Beef), needs 10 sales averaging $100,000 each to reach $1 million in revenue.
All of these businesses sell beef, but they sell to very different customers. Their average sales are at very different price points. Therefore, they must brand and market in very different ways. It is not just the product that creates the brand — all of these companies sell the same product. It is the number of sales and the average sale price that determines how each business must develop and promote its brand.
If Harry puts up a billboard or airs a TV ad, not everyone who sees the ad will come in and make a purchase. Harry must reach hundreds of thousands — possibly millions — of people to attract 100,000 customers. Harry has no choice but to engage in mass market communications: advertising and broad-base promotions of the kind that most large retailers engage in every day. At that side of the spectrum, he must choose communications channels with a low cost per potential customer and attempt to attract attention from a large audience.
But Carrie only needs 10 sales that bring in an average of $100,000, so advertising isn’t the best way to achieve that goal. Her focus must be on interpersonal communications. She must carefully cultivate relationships with a small, focused group, and her marketing efforts will have a much higher cost per potential customer.
This spectrum gives us a way to begin evaluating marketing channels and answers the question of how you attract attention once you've developed your message.