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 effectiveness of their marketing campaigns, and so continually bemoan every dollar spent as a “necessary evil” — a cost.
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. Here are 6 metrics that, if continually measured, will ensure your company invests wisely and continues to remain healthy.
Your webmaster 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; they see you, but they haven’t done anything to engage with you or indicate a specific interest. Watch your website traffic numbers carefully, particularly the number of unique visitors and return visitors. Also track where your traffic is coming from, such as search engines, directories, or other referral websites, and keep track of all traffic, and where it is coming from, in your CRM.
2. Qualified Leads
While traffic is always unqualified, leads are those individuals that take action to identify themselves as seriously interested in doing business with you. When does a person become a lead? A lead someone that has taken sufficient action to justify a salesperson’s personal attention, such as visiting your sales center in person.
You should record the number of qualified 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.
3. Conversion Rate
How many of your leads convert into sales? This may be the most important measurement of your marketing’s effectiveness. 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, and it is imperative that your sales team be up to the task. Remember, the purpose of all marketing is to generate sales, not just leads. Leads without sales = nothing.
Measure your conversion rate by lead source, cull the lowest converting sources and invest more in the higher converting sources.
4. Cost Per Lead (CPL)
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. Then, 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, promotions, etc. Find a benchmark and keep testing new sources or strategies against it.
5. Cost Per Sale (CPS)
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 which resulted 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.
6. Total Return-on-Investment (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 guarantee you reach your sales and profit goals.
Once you begin to measure and define these seven simple numbers, you’ll be able to invest in marketing with absolute confidence that every penny you invest will return a handsome profit.