One of the first questions I ask every new marketing client is this: What will success look like?
By that I mean, what are the target goals, the objectives that will tell us both that the outcome was worth the price? You see, without answering that question, any marketing spend must be considered a cost when, in fact, if properly measured, your marketing should be viewed as an investment.
What’s the difference? Let’s find out!
If you knew every dollar you spent on marketing would ultimately return you $1.25, then you’d happily invest until you reached your sales or production capacity. The problem is that most companies don’t measure the effects of their marketing campaigns, and so continually bemoan every dollar spent as a ‘necessary evil’. Perhaps this comes from the old adage that “half of all advertising is a waste; we just don’t know which half.” Well, that’s no longer true. There are ways to measure the effectiveness of every penny you spend on marketing, and it doesn’t take a degree in accounting to do so.
Before I share the numbers that we use to gage marketing profitability – and that our clients use to hold us accountable – it needs to be stated that if you don’t engage in some form of marketing your business will wither and die. Period. You must actively cultivate a continual source of new prospects to buy your products. Hoping that new buyers will find you is not a strategy. But, using the following measurements can make your marketing profitable and effective:
The amount of traffic you generate is important. It should not, however, be considered an end result, but rather a starting point. You webmaster, for example, will report the amount of traffic that comes to your website; your sales reps will talk about the traffic that came through your most recent open house, etc. Traffic should be defined simply as the number of potential buyers that see you or become aware of your product or community. Traffic is unqualified in that those individuals might see you in the same way they view an ad in a magazine. They see you, but they haven’t done anything to engage with you or indicate a specific interest.
With regard to your website, watch carefully your traffic numbers, particularly the number of unique visitors and the number of return visitors (the number of ‘hits’ you get on your website is obscure and fairly useless as a measure of effectiveness). Other things you’ll want to record and measure include where your traffic is coming from, such as search engines, directories, or other referral websites. For example, if you are a retailer, you’ll want to measure the amount of traffic that comes from Google searches as opposed to that referred to you by your manufacturer. Both are import, but should be measured separately, or as individual traffic sources, as we’ll next explain.
2. Traffic Sources
You may have multiple marketing channels that bring traffic your way – your website, media advertising, signage, outside agents, referrals, etc. Keeping track of the amount of traffic coming from each channel requires little more than the discipline to keep asking the question, “How did you find us today?” Of course, you’ll have those numbers from your online sources, but it’s important that you have a clear grasp of how every channel for which you’re spending money is performing. If you don’t measure the results of a campaign, you can’t know if it’s a good investment; if your money is well spent. And that’s what keeps most businesses, particularly in our industry, from marketing adequately and effectively. So, keep a ledger of all traffic, and where it is coming from.
From a given amount of traffic, those people that visit your website or social pages, how many of them will sign up for your newsletter, register to download a whitepaper, or fill out a ‘Contact Us form?’ If you don’t have a way to keep in touch with them, you can’t continue the conversation.
As marketers, our first real goal is to get a name and contact information so we can continue to nurture the prospect so that they will take some action to identify themselves as serious leads. Offering a series of plans that are relevant to a specific group, i.e. retirement homes, mountain retreats, growing families, etc., can increase website engagement by 300% – 500%. Other ‘lead magnets’ might include articles that educate consumers by answering their major questions (10 Questions to Ask Before Choosing a Builder; 6 Inexpensive Design Features To Increase Energy Efficiency, etc.) or that offer insights that are relevant and helpful to your target audience. Be creative and keep it educational and you’ll get more responses.
While traffic is always unqualified, leads are those individuals that take action to identify themselves as seriously interested in doing business with you. Leads are the people that your sales reps want to talk to, the ones that represent a real potential of buying your home or becoming a resident in your community. As a marketer, the number of leads I can generate for a client is the number that I’m most often measured by. And not just ‘leads’, but qualified leads.
When does a person become a lead? Though every company tends to define that differently, I consider a lead someone that has taken sufficient action to justify a salesperson’s personal attention, such as keeping an appointment or at least visiting your sales center in person.
You should not only record the number of qualified leads your marketing program generates, but also the number of leads from each traffic source. You may find that while one channel produces a greater amount of traffic, you get few real leads from that source. Remember, traffic is not the goal, but rather the number of qualified leads.
5. Conversion Rate
How many of your leads convert or turn into sales? This may be the most important measurement of your marketing’s effectiveness, even more that the number of leads. Other marketers might label me a heretic for saying that. After all, the conversion rate has to do with the effectiveness of your sales team in making the sale. That’s true, and it is imperative that your sales team be professional and up to the task. I spent too many years as a sales manager and trainer not to acknowledge that fact. However, the purpose of all marketing is to generate sales, not just leads. Leads without sales = nothing.
While your sales effectiveness is vital, there is a marketing component to your conversion rate. You find that by measuring your sales per traffic source. As already mentioned, you can get a lot of traffic from a single source that may never turn into a sale. As an example, I’m a firm believer that home shows can produce some of your highest converting leads. However, if at your show booth you decide to have everyone that attends register to win a 55″ TV, then you’ll get a lot more people to register that will never turn into leads or sales. You’re back to generating traffic, much of it worthless, and will generally end up with fewer qualified leads than if you concentrate on attracting those specific attendees that are most likely to be interested in purchasing your home.
Measure your conversion rate by lead source, cull the lowest converting sources and invest more in the higher converting sources.
6. Cost Per Lead
This is where your money and your marketing converge, and how you really define when your marketing is profitable. Your cost per lead is easy to calculate – take the total amount you send on marketing and divide that by the number of leads you generate. Simple. But, again, don’t stop there. Next run that same formula per lead source. That will show you how your total cost per lead from your website compares with your cost per lead from home shows and or promotions. Find a benchmark and keep testing new sources or strategies against it.
7. Cost Per Sale
It is possible that the lead sources with the highest cost per lead also have the highest conversion rate to sales. Or, it could be just the opposite. You won’t know unless you monitor and measure it. Divide your total marketing budget by your number of sales to arrive at your marketing cost per sale. For example, if you spent $1000 on a marketing promotion that results in two sales, your cost per sale is $500. Calculate your overall average, then do the math for each traffic source to see which produces the best results.
8. Total ROI
When you know consistently what your cost per sale will be, then compare that to the average profit you’ll make on that sale. That’s your total return on your marketing investment. If that’s a positive number, then you now know exactly how much you should spend on marketing to reach your desired profit goal. This will work for large companies or small, retailers, communities or service companies. Congratulations – you now have a realistic marketing budget that will guaranty you reach your sales and profit goals.
Once you begin to measure and define these eight simple numbers, you’ll be able to invest in marketing with the absolute confidence that every penny you spend will return a handsome profit.
Scott Stroud is Business Development Manager for Power Marketing & Advertising, a full-service marketing firm working exclusively with housing companies and communities. Scott is the co-author of Managing Your Business With 7 Key Numbers, available at BuilderBooks.com.