Why You Should Read This Article:
In any business, the only profit centred activity is marketing; any other activity is cost centred. There are two marketing activities: acquiring customers and retaining them. Therefore any activity, whether operational or administrative, as long as they are not focused on marketing, are profit draining. If the core activity of your business is marketing it makes sense that you understand how to measure your marketing results. This article will show you how to do that using tools already at your disposal. In this part our focus will be on customer acquisition and in future articles we will address strategies for customer retention.
Marketing Lessons from the Past:
I have just completed reading Claude Hopkins’ “Scientific Advertising” and Eugene Schwartz’s “Breakthrough Advertising” as part of my research for my forthcoming 7 Figure Code books series on how to make 7 figures per annum as an accountant, lawyer, doctor, dentist and consultant.
When I recovered from the initial shock of spending $297 for a single book and decided to enjoy the contents of the books, it struck me that those books were written decades before the emergence of the internet yet what they wrote about still rings true today.
In this age, when advertising agencies continue to claim that 50% of advertising resources are wasted but they don’t know which 50%; you wonder why these agencies have not taken the time to read these classics.
Way back in 1923, when the parents of Google founders Larry Page and Sergey Brin were not even born, Claude Hopkins had already proclaimed that advertising can be tested and measured. At that time, they did not have 5% of the tools we have at our disposal today to test and measure advertising and marketing; yet Mr. Hopkins saw that indeed it is possible to test and measure advertising.
So why is it that advertisers and marketing consultants continue to say that they cannot measure the result of their work? It is because most entrepreneurs and businesses that outsource their advertising and marketing do not know what outcome to expect.
If you gave someone a job without knowing what outcome to expect, of course you are not going to get your expected outcome because you never had one in the first place.
The aim of this article is to help small and medium sized professional entrepreneur accountants, lawyers, doctors, dentists and consultants learn how to calculate the return on investment (ROI) on their marketing in order for them to know what result to expect from their marketing process.
What Tools are Effective for Measuring Marketing Outcomes?
The fundamental objective of marketing in any business, big or small, is customer acquisition. Not to get your name out there or brand yourself but to acquire customers. The tactics might differ from one business to another; but the objective remains the same: customer acquisition.
Therefore if the core of your marketing is customer acquisition, then what should be your core marketing metric?
Your key marketing metric must be: cost per customer acquisition.
This means the amount it cost you to acquire a new customer.
When you add together the amount it cost you on ads, social media, print materials and divide that by the amount of customers you obtain from a particular marketing campaign or on-going marketing process, that would be your cost per customer acquisition.
Years ago it would have been impossible to estimate the cost of customer acquisition. Now you can use Google AdWords. Making use of AdWords, within a week, you will be able to know how much it would cost you to bid on certain keywords. If you continue to tweak and adjust your campaign, within two weeks you will come pretty close to knowing the cost of your online customer acquisition.
If you place an ad in a newspaper calculate how many calls you received as a result of that ad and how many of those calls resulted in sales. You divide that by the average value of each customer and the cost of the ad and you have your ROI for the ad.
What is the Lifetime Value of Your Customer?
The lifetime value of your customer is the length of time a customer remains with you and amount they spend whilst they are with you. Let’s say if your average customer life cycle is a year and their average spend is £200 for the duration of that time, then your average customer value is £200.
So to know your marketing ROI, all you need to do is subtract your cost per customer acquisition from the lifetime value of your customer and you get your marketing ROI. There are other sophisticated tools such as the Latency Test that can provide you with more accurate information however the above formula is the most basic one you can use to determine your marketing ROI.
If you do not have an in-house marketing team and you have to outsource your marketing, you need to use the above as a template for measuring the performance of your marketing consultancy firm.
Finally here are two things you must pay attention to in your measurement: all measurements must be aimed at meeting a specific target and data outcome must be based upon past, present and future results.
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Romeo Richards is the CEO of The Business Education Center: http://theprofitexperts.co.uk the consultancy division of Richards International Group. The Business Education Center provides the most in-depth and comprehensive business coaching and training to professionals such as doctors, lawyers, accountants, business consultants, private security firms and retail executives.
Romeo holds a Master’s Degree in International Relations and is the author of eight eBooks, a book & numerous articles, whitepapers & best practices on retail loss prevention & profit protection.