On Tuesday I mentioned that paid advertising – particularly online advertising – is an effective way to break out of the hamster wheel of all your client winning being dependent on your personal activity.

But, of course, paid advertising feels very risky. That's cold, hard cash going out of your account.  

You may only have 24 hours in a day, but at least you get another 24 tomorrow! When your money runs out, it's all over. 

There are three common fears people have about advertising online.

The first is “does it work at all for my sort of business?”

That was a valid concern back when Google Adwords was the only game in town. Not everyone sells something that people actively search for.

But with highly targeted advertising options on Linkedin and Facebook you can reach pretty much anyone these days. 

The second fear is “will I mess it up and lose a fortune?”

That's a very real risk if you don't learn how to use the platforms properly, including making sure you have sensible caps on budgets. 

I've been there myself and paid for ads that send visitors to non-existent pages or pages that just didn't stand a hope of getting people to do what I wanted.

So you must make sure you learn how to use whatever platform you choose from a reliable source. 

And don't just rely on the training from Google, Linkedin or Facebook themselves. They'll show you the basics of using the platform, but not how to get the most from it. After all, they've got a vested interest in you spending more. Learn from someone who's successfully doing what you want to do (e.g. get leads for high-value services, get sales for online products, etc.)

The third fear is probably the biggest: “is it worth it?”

In other words, will the money I invest in advertising pay back?

Truth be told, this is a tough question to answer. It all depends, so you have to test.

It's relatively easy to test if your campaign will be profitable if you're selling low-priced products that sell quickly with little need to build credibility and trust. You can just run a small-scale campaign and within a few weeks count the sales and measure the return on investment.

If it's profitable you continue or ramp it up. If it's not, you try something else.

But when you sell high-value products or services with a long sales cycle it might take ages before you get a sale. And a small number of sales won't be statistically significant, you need many. 

Now one option is to reconfigure your business a bit so that you have a smaller, “easier to buy” way of starting to work with you. For example, a short analysis project to set the stage before embarking on a big transformation. Frankly, that's a sensible thing to do anyway. But it's not going to happen quickly.

So from the perspective of being able to confidently use paid advertising right now, the way to get a degree of confidence is to use rules of thumb and be very conservative.

One method is to look at the value of the leads you've generated historically. So if you've managed to get one new client worth on average $5,000 for every 200 online signups that means an online lead is worth roughly $25 to you.   

That means that in theory, you can afford to pay up to $25 per lead and still come out profitable.

But of course, that's theory. Just because a lead is worth that much historically doesn't mean your leads from paid advertising are going to be worth the same. They might be worth more or less. So it pays to be conservative.

So I might say to myself, “you know what, as long as I can get leads for $10 a pop I'm going to be safe”.

Then I can start a small ad campaign and if my cost per lead is over $10 I'm either going to stop the campaign or perform some serious surgery on it.

That gives me the confidence to start running ad campaigns knowing that I've got a big safety margin if they don't pay off as well as I'd hoped.

Of course, it might be that you're just starting up online and you haven't generated any significant number of leads and clients from online sources in the past.

In that case, I'd advise being even more conservative. Play around with some numbers and estimates for your typical client value and a conversion rate of leads to clients. Maybe you estimate that 1 in 100 leads is going to turn into an opportunity (e.g. a strategy call) and 1 in 3 of those is going to turn into a client. 

We're not trying to get exact figures here, just trying to get orders of magnitude.

If you find that your average lead value is in the $20+ range then the chances are you're going to be able to generate them for significantly less than that using advertising (my leads typically cost between $1-2 on Facebook, $4-6 for more qualified leads on Linkedin).

If your average lead value is only a few dollars, then it's probably not even worth thinking about online advertising until you can get that value up. Find ways of adding more value to clients so you convert more and they pay you more. Otherwise, advertising will never pay off for you.

Even if you never end up doing any online advertising it's worth doing this exercise. It'll give you a good feel for the “efficiency” of your lead generation. And if you replace the advertising costs with the cost of your time for activities like networking or getting referrals it'll help you see all your activities in terms of their return on investment.

Well worth doing.