Do The Math UnderstandingMarketingROI toBuild& MeasureA MarketingPlan Patricia McGuinness Principal, Shoestring Business Marketing [email protected]
Do The MathUnderstanding Marketing ROI
to Build & Measure A Marketing Plan
Patricia McGuinnessPrincipal, Shoestring Business Marketing
DEFINING MARKETINGStep 1:
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• Who are they?
• Where are they in the sales pipeline?
• How will you move them through the funnel?
Sales
Suspects
Before you begin…understand your prospects
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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.
Sales
Suspects
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DEFINING MARKETING METRICSStep 2:
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3 Essential Key Performance Indicators (KPIs)
1. Lead-to-Sale Rate (LTSR)
2. Average Cost per Acquisition (CPA)
3. Average Cost per Lead (CPL)
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Lead-to-Sale Rate (LTSR)
• The number of leads required to generate one new sale. The formula is simple:
# Sales
# Leads = LTSR
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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
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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
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BUILDING A MARKETING PLAN USING THE 3 KEY PERFORMANCE INDICATORS
Step 3:
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Do the Math : Defining Sales Objectives
1. Identify how many sales you want or need to generate each month.
2. Determine the number of leads required to reach that sales goal:
Sales
LTSR = # Leads
4. Determine the maximum marketing spend necessary to achieve your sales goal:
Leads X CPA = Marketing Budget
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Lead-to-Sale Rate (LTSR)
# Sales
# Leads = LTSR
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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
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Cost per Acquisition (CPA)
Annual Marketing Spend
# of Sales = CPA - Avg
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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
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Average Cost per Lead (CPL)
CPA x LTSR = CPL - Avg
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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
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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 Budgetwww.shoestringbusinessmarketing.com 18
Do the Math : Defining Marketing Objectives
1. Identify how many sales you want or need to generate each month.
2. Determine the number of leads required to reach that sales goal:
120 Sales
10% LTSR = 1200 Leads
4. 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
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MEASURING MARKETING EFFECTIVENESS
Step 4:
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• 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
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Step 1: Calculate 3 Essential KPIs
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
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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
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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
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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.
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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.
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