I've been working in marketing for well over a decade now, and there's been one commonality I've noticed. Whether I worked for a small startup or a national corporation, there was a huge disconnect between the marketing dollars spent and the return of those dollars.
For product sales, it's fairly easy to say that "we spent $10,000 on this ad and sold $20,000 worth of widgets using the coupon code". But what about a service business that generates sales and leads from generalized marketing efforts? How can you assign a value to a phone call received from a magazine or a web submission from an online ad?
I’ve been working in marketing for well over a decade now, and there’s been one commonality I’ve noticed. Whether I worked for a small startup or a national corporation, there was a huge disconnect between the marketing dollars spent and the return of those dollars.
For product sales, it’s fairly easy to say that “we spent $10,000 on this ad and sold $20,000 worth of widgets using the coupon code”. But what about a service business that generates sales and leads from generalized marketing efforts? How can you assign a value to a phone call received from a magazine or a web submission from an online ad?
Well, we’ve developed a simple way for you to do just that. Using this simple form, you can enter values to find out how much a lead is worth, and whether or not a marketing product or service you’re considering can pay for itself, let alone turn a profit.
If you have any questions about terms or phrases used in the descriptions for each field of the calculator, just refer to the “Key Terms” glossary on the left side for an easy-to-follow description for each term.
Customer Monthly Revenue
Each customer brings in a certain total revenue over the course of their relationship with your business. Whether it’s a predetermined fee, per-hour cost, or a purchasing pattern, it’s good to know how much money the average customer brings your business on a monthly basis.
Average Customer Retention Time
How long does your average customer continue to buy from you? If it’s a contract, it’s easy to break this down. Otherwise, take some time to see how long retention lasts, on average, and you may find opportunities to increase the length of the relationship.
If you have a sales team, odds are you are paying them a commission. This is separated in this form because it’s calculated based off revenue as opposed to profit.
Profit Percentage Per Sale
Do you know how much each product or service you sell produces in actual profit? This is a very important number to know for any business. By breaking down each sale and its associated costs, you might find that your profit is not what you thought, or you might identify products or services that you can focus on to find a better profit margin. In sales of items, this is usually called the “markup.”
Total Revenue per Customer over Lifetime
This is the overall value, before costs are deducted, of each of your customers. While we try not to think of our customers as dollars and cents, it’s important to gauge the long-term viability of a product or service.
Total Profit per Customer over Lifetime
This is the profit you’ll receive for each customer over the lifetime of their relationship with you.
If you get 100 phone calls, how many of those turn into paying customers? Many businesses don’t track conversion rate, which means they are unaware of what is probably the easiest part of their sales process in which to measure improvement. You might find that a member of your sales team isn’t performing, or an ad you’re running isn’t as effective as others.
Lead Value – Revenue
This is not the value of a customer, but rather the value of a phone call or email. In marketing, it’s good to know this number, which allows you to determine (by using our form) how many inquiries a marketing piece needs to produce.
Lead Value – Profit
We separate out lead value from a revenue and profit standpoint because at times, you want to determine the risk of a marketing piece or service. While it’s good to know that the ad will be paid for, it’s better to know whether or not it will return a profit.
If you have an employee and want to determine how effective they are, this would be their monthly salary (including taxes and other costs). If it’s a marketing retainer, you would enter the monthly fee. And if it’s an ad, mailer, etc., enter the one-time cost.
Number of Leads to Break Even – Revenue
This is the number of leads that a marketing product or service would have to generate to break even, based strictly on revenue. If you don’t feel that you can get this many phone calls or emails from the marketing, then you should opt not to purchase it. If it can generate the sales indicated here, it might be worth the risk to explore and at the very least, you’ll increase awareness for your brand without risking too much.
Number of Leads to Break Even – Profit
This is the number of leads you’d need to have the marketing product or service paid for, strictly from profit. This means that your costs are completely covered, and if you can generate this many phone calls or emails (or sales) from the marketing piece, it’s a great investment!
After running this, is the number of leads needed to break even (or profit) something you can realistically achieve with the ad you’re running or the service you’re considering? If so, then great! You can feel comfortable about spending the money and knowing there’s a good chance it will return a profit for you.
If you’re unsure about the results of the marketing, at the very least, you can find a number to hold the service to. For instance, if you need to generate 10 monthly leads from an SEO campaign, communicate that to your vendor. If they feel confident about hitting that mark, then you can keep them accountable to it. It’s much better than just going with a “pay and pray” approach.
Here at Post Modern Marketing, we use this worksheet with all of our potential customers. We feel very strongly about only taking your money if it’s going to create a positive return for you. If the numbers just don’t make sense, we’ll tell you with complete transparency and get you pointed in the direction where your marketing budget can be spent most effectively.
Use these standards for all of your marketing campaigns, and you’ll find yourself spending less and succeeding more with your efforts!