Do The Math Pm2
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Defining and measuring marketing by identifying 3 key performance indicators and tying marketing results to sales.

Defining and measuring marketing by identifying 3 key performance indicators and tying marketing results to sales.

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  • SUSPECTS represent the entire universe of people who might possibly buy your product or service.   PROSPECTS are a subset of suspects you have identified and have targeted for conversion into customers because they possess certain characteristics which are similar to those your current customers possess. The more specific and accurate your prospect definition is, the better able you are to create marketing efforts to address their specific needs.   For example, if you’re an interior decorator, a suspect is anyone interested in home decorating. But you’ve narrowed that suspect group down to:   Females 25 – 54 Income greater than $75,000 Home value of greater than $150,000   They may or may not be aware of your business offering, but they have never expressed an interest in your products or services.   CONTACTS are prospects you have begun communicating with, but with whom you do not currently have a business relationship.   Marketing efforts targeting this segment should a) increase awareness or b) create a desire for your product or service.   LEADS are contacts who have actively responded to one or more of your marketing efforts by contacting you personally or by completing a lead generation form on your website. They are not current customers, although past customers are an excellent lead source.   Marketing efforts targeting this segment should strive to demonstrate how your product or service solves their particular need.     SALES, for the purposes of this whitepaper, are former prospects, contacts, or leads who have completed at least one purchase.     Understanding where each of your prospects is within this funnel and creating marketing efforts designed to move them deeper into it, will allow you to establish reasonable marketing budgets with confidence and measure your marketing ROI with ease.
  • SUSPECTS represent the entire universe of people who might possibly buy your product or service.   PROSPECTS are a subset of suspects you have identified and have targeted for conversion into customers because they possess certain characteristics which are similar to those your current customers possess. The more specific and accurate your prospect definition is, the better able you are to create marketing efforts to address their specific needs.   For example, if you’re an interior decorator, a suspect is anyone interested in home decorating. But you’ve narrowed that suspect group down to:   Females 25 – 54 Income greater than $75,000 Home value of greater than $150,000   They may or may not be aware of your business offering, but they have never expressed an interest in your products or services.   CONTACTS are prospects you have begun communicating with, but with whom you do not currently have a business relationship.   Marketing efforts targeting this segment should a) increase awareness or b) create a desire for your product or service.   LEADS are contacts who have actively responded to one or more of your marketing efforts by contacting you personally or by completing a lead generation form on your website. They are not current customers, although past customers are an excellent lead source.   Marketing efforts targeting this segment should strive to demonstrate how your product or service solves their particular need.     SALES, for the purposes of this whitepaper, are former prospects, contacts, or leads who have completed at least one purchase.     Understanding where each of your prospects is within this funnel and creating marketing efforts designed to move them deeper into it, will allow you to establish reasonable marketing budgets with confidence and measure your marketing ROI with ease.
  • Keep in mind that this number is meant to provide a starting point, an average, to help you make informed business decisions. Many of your customers will have been acquired at a much lower CPA; many will have been acquired at a much higher CPA.
  • Keep in mind that this number is meant to provide a starting point, an average, to help you make informed business decisions. Many of your customers will have been acquired at a much lower CPA; many will have been acquired at a much higher CPA.
  • Keep in mind that this number is meant to provide a starting point, an average, to help you make informed business decisions. Many of your customers will have been acquired at a much lower CPA; many will have been acquired at a much higher CPA.
  • This $20 CPO-L is 100% higher than the benchmark CPL we established earlier of $10. If this was the only measurement you were using, you would be tempted to stop the campaign immediately, right?
  • An apples-to-apples comparison of this campaign against the benchmark numbers yields some interesting information. The CPL and CPA are significantly higher than the benchmarks of $10 and $100, respectively, but the LTSR is slightly better than the average.   Bingo! You’ve suddenly got solid information you can use to evaluate this campaign. Completing this exercise for each of your other marketing efforts will provide you with all of the information you need to ensure that sound business decisions are in order. And isn’t that what you were looking for?
  • There’s no clear-cut answer here. It’s really a call only you can make. Marketing is a process of trial and error, after all. Part art and part science.   But now you’ve got some simple tools to help you put both the art and the science on equal footing. Continue using these KPIs and you’ll be well on your way to making informed marketing decisions and determining your ROI with a confidence you’ve never felt before!

Transcript

  • 1. Do The Math Understanding Marketing ROI to Build & Measure A Marketing Plan Patricia McGuinness Principal, Shoestring Business Marketing [email_address]
  • 2. DEFINING MARKETING
    • Step 1:
    www.shoestringbusinessmarketing.com
  • 3.
    • Who are they?
    • Where are they in the sales pipeline?
    • How will you move them through the funnel?
    Before you begin…understand your prospects www.shoestringbusinessmarketing.com Sales Suspects
  • 4. Next…Understand Marketing
    • Any effort designed to pull your target market deeper into the funnel – and move them from awareness through interest to purchase - in the most cost-effective way possible.
    www.shoestringbusinessmarketing.com Sales Suspects
  • 5. DEFINING MARKETING METRICS
    • Step 2:
    www.shoestringbusinessmarketing.com
  • 6. 3 Essential Key Performance Indicators (KPIs)
    • Lead-to-Sale Rate (LTSR)
    • Average Cost per Acquisition (CPA)
    • Average Cost per Lead (CPL)
    www.shoestringbusinessmarketing.com
  • 7. Lead-to-Sale Rate (LTSR)
    • The number of leads required to generate one new sale. The formula is simple:
        • # Sales
        • # Leads = LTSR
        •  
    www.shoestringbusinessmarketing.com
  • 8. Average Cost per Acquisition (CPA)
    • The average $ amount you must spend to acquire one new customer. Note: This figure will vary greatly depending on your business model and the industry you’re in.
    •   
    • To estimate this KPI, use the following formula:
        •   Annual Marketing Spend
        • # of Sales = CPA - Avg
          •  
    www.shoestringbusinessmarketing.com
  • 9. Average Cost per Lead (CPL)
    • The average cost of converting a prospect from an unknown entity into a qualified lead.
    •  
        • CPA x LTSR = CPL - Avg
    •  
    •  
    www.shoestringbusinessmarketing.com
  • 10. BUILDING A MARKETING PLAN USING THE 3 KEY PERFORMANCE INDICATORS
    • Step 3:
    www.shoestringbusinessmarketing.com
  • 11. Do the Math : Defining Sales Objectives
    • Identify how many sales you want or need to generate each month.
    • Determine the number of leads required to reach that sales goal:
        •   Sales
        • LTSR = # Leads
    • Determine the maximum marketing spend necessary to achieve your sales goal:
    •   Leads X CPA = Marketing Budget
    www.shoestringbusinessmarketing.com
  • 12. Lead-to-Sale Rate (LTSR)
        • # Sales
        • # Leads = LTSR
        •  
    www.shoestringbusinessmarketing.com
  • 13. Lead-to-Sale Rate (LTSR)
    • To start, you can plug in any historical data you have. Or, if you’re familiar enough with the sales process for your company, you can use your best guess based on your experience.
    •  
    • Do the math:
    • Let’s say that one out of every 10 leads converts to a new sale or customer.
        • 1 Sales
        • 10 Leads = 10% LTSR
    www.shoestringbusinessmarketing.com
  • 14. Cost per Acquisition (CPA)
        •   Annual Marketing Spend
        • # of Sales = CPA - Avg
          •  
    www.shoestringbusinessmarketing.com
  • 15. Cost per Acquisition (CPA)
    • Do the Math:
    • If last year you spent $10,000 on marketing and you acquired 100 new customers or sales, then:
        •   $10,000 Annual Marketing Spend
        • 100 New Sales = $100 CPA - Avg
    www.shoestringbusinessmarketing.com
  • 16. Average Cost per Lead (CPL)
    •  
        • CPA x LTSR = CPL - Avg
    •  
    www.shoestringbusinessmarketing.com
  • 17. Average Cost per Lead (CPL)
    •  
    • If you know your CPA is $100 and your LTSR is 10%, your CPL looks like this:
    •  
      • $100 CPA x 10% LTSR = $10 CPL - Avg
    •  
    www.shoestringbusinessmarketing.com
  • 18. Example:
    • Let’s say your goal is 120 sales year, or 10 per month
    • You spend $10 on average moving prospects to leads (CPL)
    • 1 in 10 leads becomes a sale (10% LTSR)
    • You spend $100 on average to acquire a new sale
    • Do the Math:
      • Sales Goal = 10 New Sales Monthly
      • 10 Sales 10% LTSR = 100 Leads
      • 100 Leads x $100 CPA = $1,000 Monthly Marketing Budget or x 12 months = $12,000 Yearly Marketing Budget
    www.shoestringbusinessmarketing.com
  • 19. Do the Math : Defining Marketing Objectives
    • Identify how many sales you want or need to generate each month.
    • Determine the number of leads required to reach that sales goal:
        •   120 Sales
        • 10% LTSR = 1200 Leads
    • Determine the maximum marketing spend necessary to achieve your sales goal:
    •   1200 Leads X $10 CPL = $12,000 Marketing Budget
    • 120 Sales X $100 CPA = $ 12,000 Marketing Budget
    www.shoestringbusinessmarketing.com
  • 20. MEASURING MARKETING EFFECTIVENESS
    • Step 4:
    www.shoestringbusinessmarketing.com
  • 21.
    • As an example, here are the details of a monthly PPC effort:
      • Monthly Budget: $500
      • Average # of Clicks: 250
      • Cost Per Click: $2
      • Form Completions (Leads): 25
      • Sales: 3
    Step 1: Calculate 3 Essential KPIs www.shoestringbusinessmarketing.com
  • 22. Cost Per Lead (CPL)
    • First, let’s look at the specific cost per lead. Here’s the formula again:
        • Total Cost of Marketing Effort
        • # Leads Generated = CPL
    • For this PPC effort, the formula looks like this:
        • $ 500 per month
        • 25 Leads = $20 CPL
    www.shoestringbusinessmarketing.com
  • 23. Lead to Sale Ratio (LTSR)
    • Let’s dig a little deeper and look at the LTSR. Here’s the formula again:
      •  
        • # of New Sales
        • # of Leads = LTSR  
      •  
    • Plugging in the sample figures above, you get the following:
        • 3 Sales
        • 25 Leads = 12% LTSR
    www.shoestringbusinessmarketing.com
  • 24. Cost per Acquisition (CPA)
    • Maybe the final benchmark, CPA, will help clarify things. Here’s that formula again:
    •  
        • Total Cost of Marketing Effort
        • # Sales Generated = CPA
    •  
    • The CPA on your PPC effort looks like this:
        • $500 Total Cost of Marketing Effort
        • 3 Customer Conversions = $167 CPA
    www.shoestringbusinessmarketing.com
  • 25. Step 2: Evaluate Against Benchmark
    • Take a look at the monthly goals established earlier:
    •  
        • Sales Goal: 10 New Sales per Month
        • Marketing Budget: $1,000 per Month
    •  
    • The PPC campaign yielded 3 new sales and cost $600. That means you used 60% of your budget to reach 30% of your sales goal.
    www.shoestringbusinessmarketing.com
  • 26. Step 3: Determine Next Steps
    • You may decide that the LTSR of 12% means that, with a little tweaking of your target market or keyword selection, you can, over time, make the effort yield results more in line with your benchmarks and sales goals.
    • You may decide to scale back your allotted PPC budget and re-allocate some of it towards more effective efforts.
    • Or you may decide to terminate the PPC efforts and try something new.
    www.shoestringbusinessmarketing.com
  • 27. Thank You Patricia McGuinness Principal, Shoestring Business Marketing [email_address]