Measuring Marketing Effectiveness

Measuring Marketing Effectiveness

April 14th, 2013 // 7:18 pm @

How well is your marketing working?

That question can stump most business owners. Even if they have an answer, it’s usually qualitative, such as “better, good, not as well”. Those answers are still most likely based on anecdotal evidence and not any empirical data.

Every aspect of your business should be held accountable – especially marketing dollars which can be easily tracked. You need real answers in order to manage your business properly. To begin measuring your marketing’s effectiveness, we first need some basic metrics.

1. Number of New Customers

The easiest one for entrepreneurs to track, and probably the one that matters most. Even if everything else is falling apart, adding new customers every month can compensate for a lot.

You also want to track this figure by product or service. A few customers at high priced items may be better than numerous low-end buyers.

2. Number of New Leads

Now it starts to get more detailed. How many new leads came in, what funnel did they enter, and what media was used to acquire the lead? If you aren’t hitting your new customer targets – not generating a sufficient number of leads is probably your problem.

Depending on your business, a lead could be an inbound phone call, an opt-in for your email newsletter, a registration for an event, the scheduling of an appointment, or even a buyer of a low-priced product.

3. Cost Per Lead

Now you know how many leads you gained, you can calculate how much those leads cost you. You will look at not only the amount spent on lead generation as a whole but also each specific campaigns and marketing channel. This is an important number to know so you can allocate marketing dollars where are you getting the most affordable leads (without sacrificing quality).

To calculate Cost Per Lead:

CPL = Total Amount Spent on Marketing / Total Number of Leads Acquired

4. Cost Per Sale

Take the same process for your leads all the way through the sale. Again, one goal here is to identify your most affordable source of customers. In addition to the cost associated with generating the leads, you will also add in any conversion costs (those related to converting a lead into a customer).

CPS = Total Amount Spent on Marketing / Total Number of Customers Acquired

These numbers, by themselves, don’t offer much insight into your marketing performance. If a company spends $10 to acquire a sale while another spends $100, we can’t tell whose marketing is outperforming. We need to know more about their industries, products, and business model. There are three primary areas to look at to evaluate the effectiveness.

The first is comparing your Cost Per Sale with your Customer Lifetime Value. This is your rate of return for your marketing dollars and provides a clearer picture into long term viability. It’s possible that increases in your Cost Per Sale are necessary as your CLV increases as well.

The second area to research is the CPS and CPL for your industry and like-businesses. What are your competitors paying to acquiring leads and customers. There are industry publications and data sets available to give insight into your competitors’ metrics.

You can also collaborate with non-competing businesses, like you would find in Mastermind groups. Share and compare your data to determine if you are over-spending or under-spending. If you sell shoes only in Ohio, you could learn from someone who only sells shoes in Iowa. Furthermore, finding businesses with similar business models but in different industries can provide a wealth of information.

The third area to determine effectiveness is your own historical data. Track CPS and CPL lead over time for each marketing channel. Watch for changes in outcomes as you tweak campaigns, test new offers, and improve your follow-up.

Detailed Example:

I received a great mail piece from a lawn care company recently, so let’s use them for an example. They treat your lawn about 8 times a year and charge you annually at a rate of $250. To illustrate each of the points, we will isolate just the direct mail campaign.

Direct Mail Campaign:
Delivered to: 10,000 pre-qualified houses
Cost: $1.00 each, Total = $10,000

Phone Calls: 116
Free Lawn Assessments: 132
Total Leads = 248
New Customers = 90

Cost Per Lead: $10,000 / 248 = $40.32 per Lead

Conversion Costs: $2,000 in Phone Calls & Assessments
Cost Per Sale: $12,000 / 90 = $133.33 per Customer

Right now, we don’t know if $40 per lead is expensive or if $133 per customer is sustainable. Let’s assume (because I like their mailer) that the industry average is $60 and $160 – giving our company the edge. And, they know the average customer stays for 2.5 years and they profit $175 per customer, yielding a CLV of $437.50. Meaning their return on the marketing campaign is 3.28X (or a ratio 3.28:1).

Now all they have to do is repeat the campaign to another 10,000 homes.

Share Button

Category : member

Leave a Reply

Featured Content

What Others Are Saying...

"We have improved our business by leaps and bounds. We have, in the past 3 months, doubled our gross income... Thanks to Scott!"

James and AJ Clingerman

Sign Up For Free Tips, Strategies, and Updates