When measuring the success of a marketing plan a lot of business owners make the mistake of only focusing on website views, social media likes, and new leads. Don’t get us wrong, these key performance indicators (KPI’s) should be measured and reviewed regularly BUT to ensure that you are heading in a truly profitable direction you need to take your marketing and sales planning a step further. Talk to your bookkeeper or accountant to figure out how to accurately measure the following data so that you can use it to drive your marketing strategy.
1) Measure The Net Revenue Of Target Audience
Knowing the net revenue of each client will help you accurately determine who your most profitable clients are, which clients (if any) are costing your business money, and who you should be targeting with your marketing and sales efforts. It’s easy to make assumptions when it comes to client profitability and use these assumptions to drive your sales and marketing efforts.
For example: Henry owns a construction company with 3 key target audiences – New developments, luxury home renovations, luxury home builds. He made the assumption that new developments are his ideal target audience as they are long-term contracts, their invoices run into the millions and they allow him to build and maintain a large team. Reviewing his true net revenue by target audience revealed that after labour costs, overtime, materials, project management costs, accounting, office management, legal fees and delays that this target audience wasn’t as profitable as he originally thought and that his renovation clients were actually more profitable on average.
While there may be times when your assumptions are correct we always suggest trusting your numbers rather than your gut when making strategic marketing decisions.
2) Know Your Client Acquisition Costs
How do you find your clients? What is your cost of advertising to each target audience? How many hours a week do you spend on marketing and sales? How long is your sales cycle? How much time does each marketing activity take? These are all questions you need to know the answers to so you can determine which clients are worth pursuing and which marketing efforts are the best ones for obtaining them.
For example: Sally owns a yoga studio and to attract her ideal client she advertises on Instagram & Facebook, writes one blog a week and spends 2 hours a week networking. On average Sally brings in 6 new clients a week who purchase the introductory class offer which is $40 for the month. Out of the 26 new clients per month, only 5 continue on as annual members after the intro offer expires.
When Sally breaks down her time and costs and income it looks like this:
Social Media Advertising – $600 per month – Brings in 15 clients per month = $40 per lead
Writing a weekly blog – 10 hours per month x Sally’s rate of $60 per hour = $600 – Brings in 3 clients a month = $200 per lead
2 Hours of Networking – 8 hours per month x Sally’s rate of $60 per hour = $480 – brings in 8 clients a month = $80 per lead
Total marketing = $1680 per month
Total income from the months marketing efforts = $1040 for month one, $600 for month two
So for each month of marketing, it takes 2 months for the efforts to break even and the average cost per new lead acquisition is $65.
Sally dives deeper and realizes that the clients who are most likely to continue after the introductory offer are women in their 40’s who have back issues that she targets through her Facebook advertising and people she has built a personal connection with through networking.
Looking at the numbers Sally determines that writing her blog isn’t worth her time and puts that money into social media advertising. She spends more money targeting the demographic that is most likely to continue on an annual membership and as a result, triples her monthly leads. Her cost per lead is reduced significantly, her revenue has increased and she has saved herself 10 hours a month of writing tasks.
Without diving deeply into your marketing efforts and measuring the ROI of each effort you won’t be able to streamline and improve your marketing strategy and long term revenue.
3) Know Your Customer Lifetime Value (CLV)
It’s widely known thanks to Pareto principle that 20% of your customers generate 80% of your revenue. This is why knowing your CLV is so important. This metric is an easy calculation and essential number to know when reviewing your retention strategy and determining your future target audiences.
To calculate the lifetime value of a client simply add up the gross profit they have brought to your business over the course of their time as a client. In addition, it’s beneficial to note the length of time they have worked with/ purchased from you and if known how they found your business.
You can use this information to create target audience personas that are based on your most profitable clients for marketing purposes, to help with the creation of client appreciation campaigns, account development, and retention plans and to predict your future revenue.
Jennifer owns an e-commerce business and spends a lot of money marketing her products on social media to attract new clients. Once Jennifer started measuring her CVL as a key metric she was able to determine which campaigns were the most profitable long-term, cut the campaigns that were only bringing in one-off clients and build stronger nurturing and retention campaigns to keep customers who were loyal to her store coming back, increasing her overall revenue.
In this new era of online marketing what was once thought of as a creative, whimsical industry filled with fun swag and events has turned into a data-driven almost scientific one that relies heavily on the bookkeeping and accounting industry.
To ensure that your small business continues to grow successfully you need to make sure you talk to your bookkeeper or accountant to solidify that your growth strategy makes sense and that your marketing spend is bringing you the right ROI.