One of the reasons small businesses struggle with spending money on marketing is because they are not sure if they are getting the bang for the buck. There is only so much money to spend, but how do you know if you are getting a return on your investment? If you asked most business owners if the money they disbursed on marketing was well spent, they most likely could not tell you.
There are some marketing components that it will be hard to determine the actual dollar figure return because they are necessary and needed for your sales efforts. These include components such as marketing materials (brochures, case studies, white papers). On the other hand there are ways to ensure that you budget and spend wisely:
- Keep your marketing materials fresh and up to date with your current branding and positioning and create PDFs that can be downloaded and emailed to prospects.
- If you have to print use print on demand and only print the quantity you need, so you are not left throwing out of date materials out. Do not listen to the printer that tries to convince you to print 5000 because the per unit cost is cheaper. Think how long it will take you to use that many brochures.
For the many of other types of marketing that you will use to drive leads for your business, it is fairly easy to determine whether you are getting a return on the money you have spent. At a bare minimum you want to cover your costs.
In order to follow the logic, let us use a direct mail campaign example.
We are going to run a direct mail campaign that is focused on an offer on a particular product. This is going to be sent to 2000 targeted recipients with a call to action.
- Keep track of all of the costs. This will include design, printing, and postage for the campaign. The cost of this entire campaign was $4000.00 ($2.00 per piece)
- The price of the product is $1000.00 and you make $600.00 on each sale.
- From the campaign, you received 40 leads for your sales reps to follow up on. (2% response rate)
- Lead acquisition cost is $100.00 (Costs / Number of Leads)
- Out of the 40 leads, 15 actually turn into sales which in turn gave you $15,000 in revenue and you cleared $9000.00 in profit.
Where most businesses fall short is in actually tracking the metrics as well as proper lead follow-up. For direct mail, telemarketing, advertising, and event marketing, there is no excuse to not know how many leads you receive from the campaign or an event. It is important for every campaign or event you have that you create a way to capture and track every lead. You also need to develop a process of how leads will be handled and this should be done before you ever spend a dime. Develop a head of time an estimate of how many leads that you need to get to break even and ask yourself if that is even achievable before you begin. If it will take a 10% return for a direct mail in order to achieve your goal that is unrealistic.
Once you have a list of leads, they need to be categorized and entered into a spreadsheet, database, or CRM system. You have paid good money for those leads, you would be remiss in not capturing and tracking them. Typically you would categorize leads into A, B, or C leads based on the potential to close and time frame and develop a process for your sales force to follow for each lead type. For example, the A leads should be followed up on within 24 hours with a direct call from a sales rep. As the leads close, you are now able to attribute the sale to a particular marketing campaign or event and track your cost for lead acquisition and your actual return on your investment.
There are other marketing components such as your website that may have to be measured a little differently and over time. If you are not utilizing forms , ecommerce, or other methods of capturing leads, it may be more difficult to determine the number of leads that you received from your website. One way is to make it a policy for those that answer the phone to ask callers how they heard about your business and track the information. A good rule of thumb is that you will want to recoup your initial investment in a website in 3-6 months at the most. If a web developer has convinced you a website is going to cost you $10,000.00, then you need to ask yourself if that site is going to pay for itself in getting you enough leads in the next 6 months to cover that investment. If the answer is no, then you might need to rethink the functionality and amount you are spending.
In addition to the actual dollar return on investment, be sure to calculate other benefits achieved. I belong to a Board of Trade that costs me $200.00 a year plus around $20.00 an event so I spend around $400.00 annually. I have only gotten 1 direct client so far, but the contacts I have made through other members and partnerships that I have made are worth far more than a few direct clients. So be sure when you are calculating your return for each item at the end of the year, keep in mind the qualitative as well as quantitative return.