Do The Math Pm2

Do The MathUnderstanding Marketing ROI

to Build & Measure A Marketing Plan

Patricia McGuinnessPrincipal, Shoestring Business Marketing

[email protected]

DEFINING MARKETINGStep 1:

www.shoestringbusinessmarketing.com 2

• 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


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


DEFINING MARKETING METRICSStep 2:


3 Essential Key Performance Indicators (KPIs)

1. Lead-to-Sale Rate (LTSR)

2. Average Cost per Acquisition (CPA)

3. Average Cost per Lead (CPL)


Lead-to-Sale Rate (LTSR)

• The number of leads required to generate one new sale. The formula is simple:

# Sales

# Leads = LTSR


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


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


BUILDING A MARKETING PLAN USING THE 3 KEY PERFORMANCE INDICATORS

Step 3:


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



# Sales

# Leads = 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


Cost per Acquisition (CPA)

Annual Marketing Spend

# of Sales = CPA - Avg



• 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



CPA x LTSR = CPL - Avg



• 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


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


MEASURING MARKETING EFFECTIVENESS

Step 4:


• 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


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


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



• 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


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.


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.


Thank You

Patricia McGuinnessPrincipal, Shoestring Business Marketing

[email protected]

Do The Math Pm2

Documents

Transcript of Do The Math Pm2