by Janet Attard

How many sales do you have to make before you start making a profit on an ads buy?

If you don’t know the answer to that question, you may be throwing away your advertising dollars – or losing business because your not spending as much as you should on advertising.

Even if you sell information products online you have some costs involved. There’s percentage of every sale you pay the merchant account provider, PayPal, or fulfillment company; the cost of your time to produce and market the product, etc. Then there’s the cost of customer support (either your time, or what you have to pay someone else to handle customer support), and perhaps the cost of shipping if someone can’t download your information product easily.

Physical goods have even more costs attached to them.

To be sure advertising is paying off, you need to calculate the break-even point for your ads.

The break-even point on an ad is the point at which the ad would pay for itself. To determine that figure, divide the cost of the ad by your profit margin. For instance, if you spend $4,800 for an ad and your profit margin is 15 percent, you would have to sell $32,000 worth of products to break even on the ad. ($4,800/.15 = $32,000).

It's a good idea to calculate the number of customers you'll need to reach that dollar amount, too. To do that, divide the dollar value of sales needed to break even by the average amount a single customer spends with you. For instance, if the typical customer spends $50, you would need 640 (32,000/50) customers to pay for the ad. If you convert half the people who respond to your ad to customers, you'd need a total of 1280 inquiries to break even on the cost of the ad.

The higher your profit margin, of course, the fewer inquiries and customers you'd need to pay for the ad.

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