As this year comes to a close and the New Year appears on the horizon. We’re all thinking of making 2014 and better year. Even those businesses that did well this year want to grow and therefore hope (hope = lost of planning) the coming year is even more profitable.
Let’s say our marketing goal for the coming year is adding an additional 100K to the company coffers. How will we make that happen? And if it does not happen will we know why?
Along with the goals, there will need to be marketing messages, selected audiences, marketing tactics, metrics, opportunities, appointments and closed deals.
If we want to generate an additional 100K next year, the first number we need to know is our average deal size. For this exercise we’ll say the average deal size is 8K to 12K. So to reach the goal of 100K we’ll need to close 13 to 9 deals. 13 deals at 8K each will bring in 104K while 9 deals at 12K generate 112K. To make the math a little easy to discuss as we proceed we’ll call our average deal size 11K.
Now that we know the average number of deals we need to close (9) let’s talk about the next metric: the close rate. For this exercise, suppose our close rate is 33%. We basically close every third deal; give or take a fraction. To close 9 deals we’ll need to make 27 appointments.
The appointments will come from the leads we generate with our marketing campaigns.
Let’s further suppose 5% of the prospects we reach with our marketing message turn into leads and 50% of those people/prospects that we continue to educate and nurture turn into appointments.
Now it’s time to plug in some more numbers to see how we’ll reach our goal of 100K.
Our marketing campaigns need to reach = 1,080 possibilities
5% of the 1,080 possibilities = 54 leads
50% of the 54 leads = 27 appointments
33% of the 27 appointments = 9 closed deals
Of course the 1,080 possible candidates need to be one’s ideal prospects, not names from a random mailing list or email addresses scraped from websites and social communities.
Let’s talk about three more important numbers before we close; cost per lead (CPL), cost per acquisition (CPA) and lifetime customer value (LCV).
Suppose the marketing campaigns cost us $2K. What does that mean to our ROI for our efforts. If the marketing campaigns generated 54 leads that means each lead cost us roughly $37. If 9 deals were closed each deal cost the company $222. Let’s further suppose that customers stay with the company for 2.5 years. The company sells an online software package which subscribers pay $29.95 per month. That means the lifetime customer value is $898.50 per customer. Follow me now. So, the 2K the company spends on marketing generate $8,086 of additional revenue. Basically a 4:1 return. If the company were to increase the marketing budget to 10K the return would be $40,430.
If we wanted to make the ROI even better we’d fine-tune our ideal prospect list to generate more leads, sharpen our offers to increase the number of appointments and hone our closing skills to generate more customers.
Let me know if these numbers and formulas help. Good luck in the New Year.
