Small Business Marketing:
Determine Your Costs of Marketing Leads
The following article is geared towards the small business owner who wants to determine their company's costs of producing marketing leads. It provides a three step process that outlines how to determine the most cost-effective marketing strategies. Each step includes a summary table outlining the costs of each plan, the total leads generated and the process needed to determine the company's costs of locating potential customers.
As a small business owner, you've probably rationalized that your success relies upon either having a product that sells itself, or a sales team that is more aggressive and assertive than your larger competitors. While nobody can argue that having both of these are strengths, the simple fact remains that no matter how strong your product offering, or how aggressive your sales force, if your costs of generating marketing leads are too high, then you're losing money and losing business. In fact, some new ventures can't even get off the ground without first lowering their costs of finding potential customers. Success will not only increase your marketing ROI (return on investment), but it will dramatically improve your bottom line by increasing your product's gross profit. So, what are the steps needed to define your costs of marketing leads, isolate the most cost-effective marketing strategies and increase your enterprise's market share?
While you may be surprised to hear this, your company is already engaged in marketing. You're company is pursuing strategies to increase its market share, grow revenue and increase gross profit, except in your case, you're relying upon your product's strengths and your sales team's aggressiveness to accomplish these goals. Your enterprise just hasn't defined how increasing marketing ROI fits in the big picture and what specific marketing strategies it should focus on that will further improve your sales results. Up to this point, you may have rationalized that marketing is too expensive to pursue, or that its results are hard to measure. If that's the case, don't despair. This exercise will make it easier to measure the results of individual marketing strategies by determining the costs of the leads that result from those strategies. It will also help you dial into those marketing strategies that will further lower your costs and increase your marketing ROI. So, how is this done?
1. Summarize marketing expenditures
Your enterprise could summarize its marketing expenditures over a specific quarter, or over its entire fiscal year. The idea is to include all of your company's marketing plans and their appropriate costs. The key with marketing is to focus your efforts on those areas where customers congregate. This may require a multipronged approach. The table below is an example of what these marketing expenditures might look like and the multiple approaches your company may decide to take.
marketing expenditures: totals:
magazine and print ads $5,000.00
conferences and trade shows $10,500.00
conventions $7,500.00
company website and blog $5,000.00
online pay-per-click campaigns $7,000.00
2. Correlate number of new leads to marketing initiatives
The next step is to summarize the number of leads generated by each marketing strategy. Don't get confused about tracking where these leads come from. A number of companies are sometimes unsure of how to track leads that come from multiple marketing strategies. As simple as this might sound, the easiest way to know for sure is to ask your customer how they came to your business. Granted, leads arising from trade shows, conferences, conventions, and information requests filled out online, should all be easy to track. However, to know for sure, it's always a good idea to ask.
number of leads generated: totals:
magazine and print advertisements 125
conferences and trade shows 175
conventions 75
company website and blog 375
online pay-per-click campaigns 350
3. Determine the cost of each marketing lead
Increasing marketing ROI (return on investment) involves isolating those marketing strategies that convert the most leads into actual customers. Unfortunately, it's never as simple as just choosing the marketing strategy with the lease expensive leads. For instance, leads coming through the company's website and blog are the least expensive lead generated at just $13.33 a lead. However, if those leads rarely follow through with an order, then how inexpensive are they? You must be able to take the analysis further and determine which marketing strategies turned the most leads into actual customers. The table below shows the costs of generating leads based on the marketing expenditures from the second step.
cost of marketing leads: totals:
magazine and print advertisements $40.00
conferences and trade shows $60.00
conventions $100.00
company website and blog $13.33
online pay-per-click campaigns $20.00
The costs above are determined by taking the amount spent on the marketing strategy and dividing it by the number of leads generated by that strategy. For example, the company spent $5,000.00 on its website and blog and generated 375 leads. Its costs are therefore $5,000.00 divided by 375 or $13.33 a lead.
Most small business owners ignore the importance of marketing. They assume that it's the domain and concern of their larger competitors. However, marketing and sales are essentially one and the same. Your company's sales efforts can only be improved upon by a marketing strategy that provides multiple qualified leads. The more qualified leads your marketing strategies produce, the better your sales team's chances of closing sales. Your marketing strategies must always be viewed from the mindset of improving your sales team's performance. Dial into the least costly way to produce qualified leads, and your sales people will close more business and your business will be more profitable.
More tips:
Use a spreadsheet to
track your marketing costs.
