When Roy H. Williams wrote his groundbreaking Wizard of Ads trilogy, he included what he called the “Advertising Performance Equation.” He described this “APE” as “short but powerful, with long arms that reach into scheduling, copywriting, production, and reputation.”

The Advertising Performance Equation outlines four key variables and then plots them into a series of algebraic formulas. They are:

  1. Share of Voice (SoV): Is the word about your business getting out relative to your competition? What percentage of the market discussion do you own in your category?
  2. Impact Quotient (IQ): How powerful and memorable is your message compared to those of your competitors?
  3. Personal Experience Factor (PEF): Not merely customer service (though that is the cornerstone), this exists in the mind of consumers. It is the degree to which you fall short of, meet, or exceed their expectations. In a word: reputation.
  4. Market Potential (MPo): How big is the pie from which you cut your slice?

Here’s the equation:

SoV x IQ x PEF x MPo = Sales Volume

To better understand the APE, you can break it down into the three sub-equations that it combines:

Share of Voice (SoV) x Impact Quotient (IQ) = Share of Mind

Share of Mind x Personal Experience Factor (PEF) = Share of Market

Share of Market x Market Potential (MPo) = Sales Volume of the Advertiser.

So, let’s take market potential out of the equation for now and just focus on the first three. It’s pretty simple really: say something that resonates (IQ), budget to get the word out and get your fair Share of Voice (or greater than if possible), and then back it up with a Personal Experience Factor that stands up to scrutiny—what Seth Godin calls “remark-able.” A “remark-able” experience is not just good, but it’s so good that people will remark about it to their friends…not to help your business, but to help their friends.

Impact Quotient is each ad’s power to convince, drop by drop, adding to an ocean of credibility. It’s not enough for an ad to gain attention. Creativity that blurs clarity is pretentious. What you want in your ad is creativity that sharpens clarity. If two businesses have identical budgets, and they spend it on the exact same schedules on a radio station, for example, that doesn’t mean they’re going to have the exact same results. The Impact Quotient of an ad can leverage a schedule to outperform an identical schedule. You can turn a smaller ad budget into a larger share of mind by creating a more convincing ad than your competitors. The surprising part is that it doesn’t cost that much to do a better ad than a mediocre ad. You simply have to hone in on an idea or an offer to nudge the customer to take the next step, whether that’s going to your website, picking up the phone, or stopping by your office.

Your marketing should tee up the customer for your team to take it from there via your Personal Experience Factor. That takes some strategy in the operations of the business. You not only have to deliver what you say in your advertising, you have to figure out how you’re going to deliver it. How will it look, sound, and feel different from the guys across town, who also put on booties when they come into the house, have an upfront pricing plan, wear spiffy uniforms, and drive around in clean, clearly marked trucks?

Finding the right story to tell appeals to some customers, and presenting a more enticing offer attracts others. Unless you’re doing a percentage of both, you’re not giving people a strong enough answer to the question, “Why choose you?” Sometimes you need outside help to discover your company’s unleveraged assets in order to tell, as Paul Harvey used to intone, “the rest… of the story.”

Your marketing machine’s ability to grow your company comes from the number of resources you have and how efficiently you deploy them. Also of key importance are the impact of the message and the experience of the customer.

The APE’s ability to increase sales for your business is dependent upon your trade area’s Market Potential. The total dollars spent in your product category is a not a number you’re likely to change. The question is, what percentage of that total will be  yours?

Until a business achieves 4 to 6 percent of their market potential, they usually lack the resources to mount a serious move on being the big dog in the marketplace. What I’m talking about here is making a quantum  leap into market leadership; being one of the top providers in your category. That said, once you’ve accumulated sufficient cash and courage, the ride from 5 to 25 percent is exhilarating. Then, just like a steep hill, the climb from 25 to 33 percent is much harder. And if you’re hoping for a 33 to 40 percent market share, you’d better pray you have weak competitors who’ll do you a big favor and get out of your way.

But there are at least a couple of ways to increase Market Potential:

  • Add to what you sell in the same marketplace and gain new customers who already know you for one service but are not ready for another purchase due to a long product cycle. HVAC companies add Electrical, Electrical companies add Solar, Plumbers add geothermal heating.
  • Keep the same category and products but expand into a nearby marketplace. Choose a competitive environment where you can see yourself fulfilling an existing need. Perhaps you can sense a growth spurt in an area your competitors won’t be able to keep up with. Where are the bulldozers headed? Build there. Restart the exciting ride from 5 to 25 percent, and 25 to 33, and so on.

I can hear some of you already: “So all I have to do to win this game is change either the equipment or the playing field!”

If only it was that simple. The equation is made complicated by a collection of variables: it assumes there will be no change in the number of competitors in your marketplace or in the attractive- ness or aggressiveness of existing competitors. If they drop the ball, you may experience a significant increase in traffic without increasing your ad budget at all. Likewise, if you increase your “share of voice,” but your competitors follow suit or outspend you, your increase will be effectively nullified.

Once you tame this APE, you can turn him into the 800 lb. gorilla you need on your team.

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