How a Tiny Increase in Performance Can Double Profits
Why is good copywriting important? Because seemingly small improvements – such as from 1% to 1.3% – can result in doubled profits.
Kevin Halbert, son of the late great copywriter Gary Halbert – has a great explanation of why small increases lead to big profits.
I’m going to straight-up copy and paste this from the Gary Halbert Letter (the whole article on How to Hire a Copywriter is well worth a read):
OK, as promised I’m going to show how an increase in response from 1% to 1.3% can, in some cases, more than double your profits.
Let’s do some arithmetic Gary Halbert style.
With most paid advertising the product or service owner pays someone to get people’s attention and direct it towards your product or service. The person pointing potential customers in your direction is going to charge you on a “PER” basis.
(even search engine optimization has it’s costs)
The very important math any good direct response marketer measures is the ROI (Return On Investment). And obviously NET PROFIT.
What you are trying to measure is how much money you had to spend on advertising and how much money you got back in return after expenses.
(By the way this is why info products are what everyone wants to sell. Because it costs little to nothing to reproduce and deliver.)
Let’s say you spend $1,000 to advertise your product to 1000 people and you convert 1% of those people into buyers of your $200 product.
1% of 1000 people = 10 (customers)
10 customers X your product ($200) = $2,000
That means for every dollar you spend on marketing you are taking in two. Now for this example that extra dollar you got back isn’t pure profit. You have costs (also known as contribution to overhead), whatever they may be.
Where was I, oh yeah, OK so we’ve taken in an extra dollar for everyone we’ve sent out, but again that extra dollar isn’t pure profit we’ve got costs such as:
Merchant account fees
Pay Per Click
Pay Per Impression
Letter shop costs
And the list can go on ad nauseum. But for simplicity sake lets just say when all is said and done it costs you $75 to service each of those 10 customers. That means those ten customers cost $750 total in delivering whatever we have sold them.
Let’s see where we’re at. We took in $2,000 total after spending $1,000. And we’ve got $750 in fulfillment.
On paper that looks like
$2,000 Gross income
-$1,000 Initial Advertising Investment
=$1,000 left over
Now we’ve got $750 in fulfillment, so that looks like
= $250 profit
That is, for every $1,000 we spent we took in $2,000 gross. But what really matters is we made $250 profit.
Put another way. For every $1 we spent we made 25 cents (25% net profit).
Now let’s imagine we call in our rock star copywriter and he ups response to a measly 1.3%, copywriters have routinely been known to up conversion several hundred percent. But that entirely depends on how bad the copy was to begin with.
Lets get back to that puny .3% increase in response. Truth be told the copywriter is increasing response by 30%
That means we are now getting a 1.3% customer conversion rate.
The key point to remember here is we are still only paying $1000 and we are now getting 13 people to buy instead of only 10.
Lets see how it looks on paper now.
13 customers X $200 (purchase price) = $2,600
Now that’s not all profit, we still need to deduct the cost of the product and fulfillment like we did last time.
X $75 (product cost & fulfillment)
Ok lets see where we’re at with this new 1.3% response rate.
Now we are taking in $2,600 gross instead of only $2,000.
But $1,000 was spent on advertising so that works out like this:
$2,600 Gross Income
$1,600 Gross Profit
Now we have to deduct the cost of the product and fulfillment, so:
$1,600 Gross Profit
-$975 Fullfillment Costs
$625 Net Profit
Ok, so for the same $1,000 spent we are now making $625 Net Profit
Another way to say it is, for every dollar spent you not only got your dollar back but you also covered all of your costs and made 62.5 cents left over (a 62.5% profit for the same one thousand dollars invested).
Now in the first example we made $250 over the advertising and fulfillment costs for a net profit of 25 cents (25% profit) for every dollar invested.
That means if a copywriter can boost your conversion rate by just .3%, an increase of (a 30 percent increase in gross sales) it would, in this case, more than double your profits. to be more precise it would increase your profits by 250%.
Well, not exactly, because you are a smart cookie and you’ve thought ahead and you want your star copywriter to take your call while he’s off on a year long tour of the world, trying to regain his sanity. So you’ve been kind and generous enough to give him 5% of gross sales. That means he is going to receive $130.00 for every $2,600 you take in.
Ok, yet again, let’s see where we’re at. So the copywriter bumped up response by 30%. Instead of making $250 for our luke warm copy we are now making $650, but we are paying him $130 in commissions. So now we are down to $520, (still more than double our profit!).
Truth be told you would actually make more than 200% profit because some of the monthly costs involved with product fullfillment are fixed, like rent, web hosting, and in some cases customer service. These costs don’t increase considerably when you increase sales. This is why monthly turn around speed is so important.
It also proves that the longer you take figuring out how to write the best copy, the more money you leave on the table.
Now if you are nit picky, when it comes to calculating your profits from writing your own copy compared to hiring an A-List pro, you’ve probably not forgotten about the up front fee. Truth be told, neither have I. In the beginning the upfront fee feels very significant, but when you are up and running with a hot campaign it becomes increasingly smaller in the distance.
When you are in the middle of a hot campaign all you will be able to think about is how, for every dollar you send out, a $1.50 net profit comes back, and you will be solely focused on trying to turn the crank faster and faster.
The icing on the cake. Now not only are you growing your business at an exponential rate, but now you are also packing 30% more people on to your customer list. Any savvy marketer will tell you it costs you literally ten times as much to sell something to a new customer than to an existing one. All things being equal, you should pick a business venture that has a larger back end. And in businesses that have enduring relationships with their customers, most of the money isn’t made on the first sale.
Now you can see how small increases in conversion can lead to huge increases in profit.
It’s a lot to take in, but the principle is solid. Investing in the best website copy you can results in significantly increased dividends.
(Makes the cost of website copy seem much more palatable, even for small businesses!)