How Many Customers Should You Expect to Get from Marketing?
5 min read | Posted Jun 18, 2018
Digital Examiner found that 45% of small businesses do not track ROI of their digital marketing spend. That’s terrifying!
As a marketing agency, we attest to that reality with on-boarding clients. Even the most financially astute, colorful spreadsheet wizards are clueless when it comes to analyzing the return on their marketing efforts.
Many small business owners are not equipped to know
- WHICH questions to ask
- WHAT digital marketing data points to track
- HOW to use that information to calculate the financial implications
It’s time to change that!
Are you ready to be set apart from the 45% of small businesses owners that do not track marketing ROI? Refuse to continue throwing money away in the name of “marketing.” Let’s begin by addressing three common mistakes that can be avoided.
3 Common Mistakes to Avoid When Measuring Marketing ROI
Mistake #1: Not Tracking Lead Conversions
Do you know how many customers you are getting from your website? From Facebook and other social media? From pay-per-click advertising? From any medium?If you don’t, you are not alone. But don’t excuse the [unhealthy] norm as the standard. Climb above the norm and grasp the raised bar.
Start tracking your lead conversion rates by setting up Google Analytics and connecting your website. If you are one of our clients already, you’re already set!.
Next, you have to go in and regularly look at the data. Just as with leaning unnecessary expenses and optimizing business systems, intentionally implement measures that will increase your digital marketing lead conversions.
Keep in mind, when optimized, your website is an investment, an asset, a money maker – not an expense.To track lead conversions, use “Goals” in Google Analytics. You can record the number of people who submit a form, view a specific product or page, and more! Even better is how you can assign a monetary value for each goal completion to show the $$$ coming in from your website.
That’s half the battle in determining your website’s ROI. Onto the other missing half!
Learn how to set up Goals in Google Analytics
Mistake #2: Being Unaware of How Much Monetary Value a Lead Has
Customers have value. We know how much we get from customers.
Leads have value too!
Without tracking your leads’ value, the ROI of your marketing cannot be determined.
Calculating the value of a lead:
There is a handy dandy formula that will help you determine this. It starts with an understanding of the 20-25-50 Model.
The 20-25-50 Model
For however many people your message or offer reaches, anticipate that 20% will show initial interest. Of that 20% who show interest, expect about 25% to actively pursue what you offer. And of the 25% who pursue, look to convert 50% into customers.
For every 125 leads, aim to gain 3 customers.125 total reach
24 leads to 1st interaction
6 qualified leads to 2nd interaction
Business owners need to come to terms with the staunch reality that it takes about 42 leads to generate 1 customer.
The next piece of information you need to know is your CLV, or at very least your CAV. This brings us to common mistake number three.
Mistake #3: Not Knowing the Customer Lifetime Value (CLV)
The Customer Lifetime Value is an indicator of how much net profit you will reap from one customer. Keep in mind, the CLV will likely be different for each of your products and services. For a quick estimate, average your top 3 service price points and calculate the CLV with that.
You need to know how long your customers use your services to calculate this. You may find it more useful to calculate the Customer Annual Value (CAV) which can be done in similar fashion, but limited to a 12 month time-frame.
Let’s say your average transaction for your service is $100 per month. On average, you retain customers for 3 years. This means that the CLV for your service is ($100)*(12mth)*(3yr), or $3,600.In this scenario, tor every customer, your revenue is $3,600. Knowing that it takes 42 leads to generate 1 customer means that each lead is worth $85 (3,600/42). And when you setup your Google Analytics goal to track the 2nd interaction, their value is half of what a customer’s value is, so $1,800 in this example.
Did you realize your website could have so much impact on your revenues!?
How to Track Marketing ROI
- Track Lead Conversions
- Know the Value of a Lead
- Calculate the Customer Lifetime Value
With this information, determine the ROI of each aspect of your business marketing.
Formula for Calculating Return on Investment
ROI = Income from Converted Leads / Cost
It’s never too late to get started. Implement the 20-25-50 Model, understand the value of your leads, and understand the lifetime value of your customers so you can determine the financial impact your marketing efforts are producing.
“The best time to plant a tree is twenty years ago. The second best time is now.” – Chinese Proverb