€1 in ads bringing back €20: what clearance retail taught me about profitability

Coming up to the summer sales, a clearance retail site was running at full tilt, and its online advertising was bringing back twenty times what it cost. One euro spent, twenty euros in sales. When I quote that figure, I'm often told "it's the product, it's easy to sell." That's wrong, or at least very incomplete. I've seen products just as sellable burn through ad budget without bringing anything back. The difference is almost never decided in the advert itself. It's decided in everything that stands behind it.

An advert is only the front door. You can have the finest door in the world, if the house behind it is a mess, the visitor leaves. A campaign's profitability is decided in the shop, not in the advert: what the visitor finds on arrival, how clear the offer is, how fast the site is, how much trust it inspires. That's what this clearance site did well, and that's why its ads were profitable where another's wouldn't have been.

What makes an ad profitable is rarely the ad

On this site, every euro worked because the mechanics behind it were clean. Visitors drawn in by an advert landed on exactly what they'd been promised, not on a generic homepage where they had to start searching again. The stock shown was the real stock, so we weren't paying to sell products that were out of stock. The buying journey was short. Nothing spectacular taken alone, but put end to end, it's the difference between an advert that fills a basket and an advert that fills a stats report without ever filling the till.

The three places where an ad's money leaks away

When a campaign spends without bringing anything back, the problem is almost always in the same place: after the click. The first hole is the landing page. You run a promotion on a specific product, and the click sends people to the homepage: the visitor, who was one step from buying, has to start searching again, and gives up. The second is stock. Paying to send people to a product that's out of stock is throwing money out of the window, and disappointing a customer along the way. The third is slowness: a shop that takes too long to load loses part of its visitors before they've even seen anything.

None of these three holes gets fixed in the advert. They get fixed in the shop. That's why I'm wary of people who promise to "boost your ads" without ever looking at what happens once the click has landed. You can pour as much budget as you like into an advert: if the house behind it leaks, the money drains away through the same three holes.

The failure: the campaign we let run too long

I don't want to leave you thinking everything worked first time. We launched a campaign on a product category that, on paper, should have done brilliantly. It spent without selling, day after day. And we took a few days too many to admit it, hoping "it'll pick up." It never did. We eventually cut it dead, but it had already eaten budget for nothing. The lesson is perhaps the most important one in the trade: a campaign that isn't working, you cut it fast, with no ego. The money you save on a bad campaign is money you put back into the ones that work. Staying in love with an idea that doesn't sell costs dear.

What you can work out on your own today

One single calculation, and many business owners have never done it: how much your advertising brought in, divided by how much it cost you, over the last month. If the result is below one, you're losing money on every click. If you can't do the maths because you're not tracking sales that came from the ads, that's your job number one, even before touching the adverts. You can't steer what you don't measure.

Making every euro of advertising pay starts with what stands behind the click, and that's the heart of my work on sales. To set your prices against the competition, there's the pricing watch that checks prices every morning; and if some of your buyers are trade customers, read how to open a proper B2B channel.