What Does the Point of Diminishing Return Mean?


By Steve Moundzouris

Advertising, what does the point of diminishing return mean?

The point of diminishing return simply means that no matter how much more money you spend on advertising, your gross sales will only increase in small increment, if any at all.

Below are some sample budgets for a single product showing how diminishing return can affect your profits and sales.

Example 1

Product: Widgets

Price: $100.00

Monthly Ad Budget: 2k

Monthly Widget Sales: 30

Gross Revenue: $3,000.00

Less Advertising: $2,000.00

Gross Profit: $1,000.00

Example 2

Product: Widgets

Price: $100.00

Monthly Ad Budget: 3k

Monthly Widget Sales: 35

Gross Revenue: $3,500.00

Less Advertising: $3,000.00

Gross Profit: $500.00

Example 3

Product: Widgets

Price: $100.00

Monthly Ad Budget: 4k

Monthly Widget Sales: 40

Gross Revenue: $4,000.00

Less Advertising: $4,000.00

Gross Profit: $0.00

The examples above clearly illustrate that sometime spending more money does not necessarily mean making more profit. It doesn't take a rocket scientist to figure out that example 1 is clearly the most cost efficient budget. Assuming that without the advertising the merchant wouldn't have any sales.

When you're planning your advertising budget, take into consideration the demand for your product and always be very careful when adding dollars to your advertising, just because your selling 30 widgets when you spend 2k per month doesn't mean if you spend 4k you'll sell 40 widgets.

More Resources

The Secrets of High Money Classified Ads
When used effectively, classified ads can be one of the quickest and most inexpensive ways to increase your sales. A well written classified ad can generate thousands in sales, yet could cost you pennies to write and run.
Direct Mail = Your Money, From Printer to Mailbox to Trash!
I did a quick, very unscientific survey of 25 of my friends. I asked them to put the mail that they do not open or read in a specific trash bag.
Non-profit Coupon Books and Coupon Mailers for Small Businesses
Many groups like the Chamber of Commerce, ASB at the local high school, etc. will ask if their members can get a discount if they shop in your store or use your service.
Send em to the White Pages
Your business is listed in the Yellow Pageswhether you buy an ad or not. Your business islisted in the Yellow Book and the other phonebooks, too, no purchase necessary.
Write Attention Getting Advertisements
The most important aspect of any business is selling the product or service. Without sales, you aren't generating any income and your business will die.
In Advertising Bigger isn't Always Better
If you have been following the recent advertising news you will notice that more and more major advertisers are looking to smaller ad agencies to handle their campaigns.Is it because they feel bad? Is it because they are cheaper? Or is it because they see the level of creative talent of smaller agencies?Lets take a quick look at why this is happening and how this is good for the consumers and the advertisers.
Information Gathering & Delivery May Never Be The Same!
Give Us The Bottom Line!If you are like most people, you may have skipped down to the bottom to see how much we charge. Well we don't! That's right, the free customized information product we give away is totally free.
Ads Dont Sell - People Do !
More about advertising by BIG Mike McDanielAdvertising is not a substitute for good salestechnique and superb customer service. Insertingan ad in a handy newspaper to call attention to aline of goods will not sell those goods unless youcan back it up with intelligent, well directedsales efforts in the store.
4 Ways to Double the Power of Your Business Cards
Sure, everyone needs business cards. But why not make your business card do double or triple the work of an average business card.
What Colors Make Your Services Most Attractive?
This information is based on the principles of Laws of Attraction, Law of Allowing and Law of Deliberate Creation. And the Universal Laws of Energy (like attract likes) proven by Quantum Physics.
Pros and Cons of Establishing an In-House Ad Agency
There have been several ads promoting books and reports on thissubject, or included as part of the contents in several mailorder books stating: "SAVE UP TO 17% ON ALL YOUR ADVERTISING" It's legitimate, practical and effective, but like so many otherpromises, there are pros and cons involved. The pros are fairlyobvious.
Mortgage Marketing - Broadcast Advertising vs Direct Advertising
Do you know how to design and deploya marketing campaign?Even if your ad budget is small you should still plan and measure the results of you advertising. This process is the key to your ultimate success.
Advertising Copy: What's Really Important?
You labor long and hard trying to create the perfect advertising piece but only about 20% of your copy is going to get read. The rest will simply be scanned.
For All Those People Who Struggle With Benefits and Features
For Everyone Who Has Ever Struggled Sorting Out Benefits From Features - "SWAT Them!"SWAT is not actually an acronym. It is a compaction of the question "so what?"You see, one of the biggest problems that even experienced copywriters and marketers fall into is being clear on what benefits their product or service actually delivers to their customers.
Juice - Scam of the Decade or Opportunity of the Century
If you are an ardent web surfer and MLMer like I am, then I am sure you would have seen the sales pitch "Give away free broadband and earn £27 GBP each time". Depending on which side of the fence you are, this product is either God's gift to freebies enthusiasts, MLMers and all paying ISP subscribers or it is the biggest scam yet, bar none.
Cable Ads 5 Bucks!
Cable has grown from 13 houses connected togetherin 1948 to coverage of nearly 70% of allhouseholds in the U.S.
Advertising Inserts
One of the best and easiest ways to advertise without having to worry about shelf life of those who would most likely use your services or buy the products from your small business is to use inserts in your local newspaper. A marketing piece might also be to insert our flyers in the daily newspaper.
Small Business Image
The single easiest way to increase sales is to look professional. People believe what they see.
Business Plan Appeal - Five Rules For Writing Attention Grabbing Headlines
The success of a business plan stands or falls on its ability to get potential investors to take a moment to read it. Nothing works better for doing this than well-written headlines designed to interrupt and engage investors.
The Skinny on Billboards
Several years back the billboard people put a bigpicture of "Sharlene Wells, Miss America" onbillboards all over town. She was everywhere.

More Advertising Information:

Related Articles

7 Questions to Ask Before You Advertise
Most business owners and managers keep a fairly close eye on their marketing budgets.And nothing throws a budget out of whack faster than advertising.
5 Tips for Hot Yellow Pages Ads
Yellow Pages advertising is one of the mostpopular forms of advertising in the country today.Almost every home in America (96.
Fax Broadcast Services Get Your Message to Millions
If your company is one of those innovative businesses that has taken advantage of new fax broadcasting technologies to get your message out, you've probably come to realize that the fax broadcasting services industry is ever-changing and new developments are coming out all the time.It's pretty much a full-time job just to manage a fax broadcast database of any size, not to mention keeping the related fax broadcasting software updated and operational.
For All Those People Who Struggle With Benefits and Features
For Everyone Who Has Ever Struggled Sorting Out Benefits From Features - "SWAT Them!"SWAT is not actually an acronym. It is a compaction of the question "so what?"You see, one of the biggest problems that even experienced copywriters and marketers fall into is being clear on what benefits their product or service actually delivers to their customers.
Reach vs. Frequency: Touch 100 Once or 25 Four Times?
Reach and frequency are terms generally used when planning advertising campaigns. However, the concept of reach and frequency applies to any promotional activity you undertake: direct mail, direct selling, and even networking.
How Much Money Do I Need to Spend on Advertising?
Q: I've never really done much advertising for my business; I've always relied on networking and word-of-mouth. Now I'd like to launch a small campaign, but I'm frightened it will cost a lot of money.
The Forgotten Advertising Tip
I'm sure while you have seen many tips on advertising, many that talk about testing and tracking your ads, I'm sure that this one important tip is rarely mentioned: Running more than one ad at a time isn't the greatest idea.While it seems like a good idea to spend your monthly advertising budget all at once at the first of the month, is it really gaining you the best exposure? Even if you are running ads on various websites and networks, there is a pretty good chance many of those that see your ad on one site are going to see them on another.
Power Headlines for Promotion Success
Do you send email to your Online audience to let them know about an upcoming teleclass, your service or your book? Do you have a seminar "flyer" on your web site? The biggest mistake professionals and entrepreneurs make is to announce, rather than promote themselves. Each piece you send or put on your web site should begin with the #1 copywriting winner--the headline.
The SKINNY on Newspaper Advertising
The SKINNY on NewspapersUsing the paper is considered gospel by manypeople in business. Use it wisely and it can be agood tool.
Creditability In Advertising
I recently saw an ad taped to my mailbox, mind you, my mailbox is shared by many residents of my area. The postal real estate is typically reserved for flyers of lost dogs, cats, small children, etc.
Lamination of Signs
I suspect that everyone has an idea of what lamination is even if you have only seen it in passing. Restaurant menus are a common example.
Consider These Pressing Facts Before You Renew Your Yellow Page Ad
Your Yellow Page Ad Deserves More than 10 Minutes of Thought a YearBefore long, your Yellow Page directory rep will be paying you a visit. It's an annual event that happens several months before next year's directory goes to press.
15 Tips for Better Yellow Page Ads
Yellow Pages advertising is one of the mostpopular forms of advertising in the country today.Almost every home in America (96.
Womentisements
The unnecessary and extensive use of female models in advertisements is common not only in America & Europe, but also in Pakistan and rest of the world. Women are used to sell everything from cars to cigarettes.
Online vs. Offline Advertising
Let's face it. Email marketing and publishing have becamevery popular tool for promoting your business, especially in theUSA.
Three Keys to Crafting Successful Print Ads
Want to create print ads that get results? Below are three keys to get you started.1.
Cross Cultural Advertising
"Culture is a like dropping an Alka-seltzer into a glass - you don't see it, but somehow it does something,"Hans Magnus Enzensberger.Culture affects everything we do.
Send em to the White Pages
Your business is listed in the Yellow Pageswhether you buy an ad or not. Your business islisted in the Yellow Book and the other phonebooks, too, no purchase necessary.
The Secrets of High Money Classified Ads
When used effectively, classified ads can be one of the quickest and most inexpensive ways to increase your sales. A well written classified ad can generate thousands in sales, yet could cost you pennies to write and run.
Top 9 Reasons To Advertise
Advertising is not for every company. But some require it because their market is big and constantly changing and evolving.