Marketing Metrics: The Science That Makes the Art of Advertising Profitable

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Article source: http://culturetrends.com/. Used with author's permission.

Would your sales increase if you got more leads, prospects, callers, or visitors coming to your business? Wouldn't it be exciting if there were a way to achieve this while reducing your marketing costs at the same time? Well, there is a way and I'm going to share that with you right now.

Here it is. STOP spending money on advertising and promotions that do NOT produce profitable leads. Then take those dollars you were previously wasting and START investing them in advertising and promotions that DO produce profitable leads.

But exactly how can this be achieved? First, you need the type of hard data you get from Marketing Metrics Reports. To find out more about this, let's look at a few simple examples.

Let's assume you use a yellow pages ad, flyers, and radio ads to attract prospective customers.

If you spend $12,000 per year on yellow pages advertising and this gets you 600 leads per year, you can calculate the cost of each lead by dividing the cost of the advertising by the number of leads you get. $12,000 divided by 600 leads equals $20. In other words, each lead you get using this method costs you $20.

We call this $20 your 'Lead Acquisition Cost'. Depending on the amount of your average sale, paying $20 for each lead could be tremendously profitable.

However, in our example, let's assume that your yellow pages ad doesn't work so well and you get only 60 leads per year while spending $12,000 on the advertising. In this example your Lead Acquisition Cost works out to $200. If your average sale is only $150 and your customers (on average) deal with you once every year, obviously a Lead Acquisition Cost of $200 is just not profitable.

To complete our example, we'll assume your lead acquisition cost with flyers is $26 per lead and with radio ads it is $97 per lead.

When you have this information, you become aware that (in this example) you must eliminate your yellow pages advertising with its Lead Acquisition Cost of $200 per lead so you can afford to send out more flyers, which have a Lead Acquisition Cost of $26 per lead.

You would also let your radio advertising reps know they must produce dramatically better results right away or your radio ads will be eliminated as well.

From the above example, we can easily understand the lesson. To make profitable advertising decisions you need to know your EXACT Lead Acquisition Cost for EVERY form of advertising and promotion you use.

How do you track that? You create Marketing Metrics Reports. But before you do that, let's consider a few more variables. Some types of advertising produce a greater percentage of 'tire kickers' and a smaller percentage of buyers. So we now see that our Marketing Metrics Reports should track not only the cost and number of leads produced by each type of advertising—they should also tell us how many of the leads from each advertising source became buyers.

When we have this information, we can calculate our 'Customer Acquisition Cost' or, in other words, the amount it costs us to 'buy' a customer using each different type of advertising.

Also, at this point we need to understand another marketing metrics term—Conversion Rate. Your Conversion Rate is simply the percentage of leads or prospects that actually buy something. You calculate this percentage by dividing the number of prospects who became customers through buying something by the total number of prospects you talked to.

It is critical to calculate the conversion rate for each individual salesperson as well as the conversion rate for your team as a whole. We'll use an example to illustrate why knowing your conversion rate for each salesperson is so important.

Lets suppose you have 3 salespeople on staff. You calculated that 48% of the prospects who talked to Salesperson A actually bought something. This means that Salesperson A's conversion rate is 48%. To continue with our example, lets assume that Salesperson B has a conversion rate of 33% and Salesperson C has a conversion rate of 24%.

Really think about what this means. Salesperson C uses up twice as many leads per sale as Salesperson A. Of course, this means when Salesperson C makes a sale, your profits are dramatically less than when Salesperson A sells something. Let's plug some numbers into our example to see why profits are so strongly affected.

If the Customer Acquisition Cost per sale is $56 dollars for Salesperson A, then the Customer Acquisition Cost for Salesperson C is $112. This is because Salesperson C's conversion rate is only half as good as Salesperson A's. This high Customer Acquisition Cost (probably caused by Salesperson C's poor sales skills) likely means that you lose money on every sale made by Salesperson C. It looks even worse when you calculate the lost gross profits on the potential sales Salesperson C failed to make.

In this example, your Marketing Metrics Reports have again served you well. You now know Salesperson C must improve his or her conversion rate (probably through additional sales training) or termination will be necessary.

Now let's review how your Marketing Metrics Reports have helped you boost revenue and cut costs—in other words, made your business more profitable.

1. Your Marketing Metrics Reports have identified which forms of advertising and promotion are effective at generating leads and which are not. You know for sure exactly how much it costs to buy each lead using each different type of advertising.

2. Your Marketing Metrics Reports have helped you determine the relative quality of leads from each advertising source. You know which types of ads bring in the 'tire kickers' and which types of ads bring in buyers.

3. Your Marketing Metrics Reports have identified the conversion rate of each individual on your sales team as well as the conversion rate of your team as a whole. This gives you the information you need to implement 'best practices', focus your training efforts, and even decide which salespeople to replace if they fail to improve.

With this critical information in hand, you can make decisions that will quickly improve your bottom line. Of course, without this information some of your decisions and actions will be a blind gamble—not good if you are serious about maximizing your profits.

What do Marketing Metrics Reports look like? They are usually simple charts or spreadsheets where the type of information identified above can be easily entered. If you would like to see sample reports, e-mail the author and he will send you some. You can then modify the reports, making them perfect for use in your business.

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