That’s right, break the bank with profit. Profit is achieved by maximising your margin on increased sales. Spending money on marketing wisely will mean your costs can be contained, while sales revenues increase. But how do you do that? This article discusses why measurement of everything, marketing that you do, is so vital.
Let’s start off with some basic principles. You need to sit down and answer the following questions, if you really want to create a marketing budget that maximizes your profit.
- What is your average annual turnover? ……._______A
- How many customers do you have?…………….______B
- Customers less than a year old…………______C
- Customers more than a year old ………______D
- What is your net profit margin? (%age) ………______E
- How many leads do you generate each year? ______F
- How much do you spend on marketing? ………______G
If you can convert more leads, by targeting better and closing more sales, then you will reduce your customer acquisition cost. I guess most of you will know where I am going with this, but it is remarkable how many people have not even done this basic exercise. In another article on CRM, I will refine this further, by helping you find out who your most profitable customers are.
OK, let’s do some simple mathematics. To get how much each customer is worth to you do the following.
Customer Worth = (______A * ______E) / ______B – this is the Euro value of what each customer contributes to your wealth fund annually.
If you spend less than that on each lead, then either you are doing very well, or else you may need to spend more. Some marketing pundits, who want your money, suggest that you can afford to spend all of your profits, after your own salary, getting new leads. Personally 10-20% spent wisely can yield even better returns, as your business grows.
So how much do your customers actually cost to get?
Customer Acquisition Cost = ______G / ______C is this more than 20% of your Customer worth? If it is we need to look at two key things the first is your
Lead Conversion Ratio = ______F / ______C. If you can convert more leads, by targeting better and closing more sales, then you will reduce your customer acquisition cost. What’s more, by analyzing which lead campaigns were successful insofar as they had the highest lead conversion ratios, you can target and focus better.
Conversely you could spend less on trying to get new customers, now don’t just cut your budget, get a lot smarter in how you operate your lead generation programs!
So let’s look at your existing customers. Are there ways that you could sell more to them? Sell additional products and services? It is said that it costs at least 5 times as much to sell to a new customer as it does to an existing customer.
Existing Customer Worth = (______A * ______E) / ______D
Simple mathematics again, either increase your existing leads generation budget by 1/5th and double your sales, or significantly reduce your lead generation budget and get better results and spend some of the savings on up-selling to existing customers.
In conclusion, by operating a smart lead generation campaign for customer acquisition while continuing to sell to existing customers, will reduce your marketing budget, increase your sales’ revenues and break the bank with profit.
Finally, if you would like to learn more and discuss your own particular situation, whatever business you are in, give us a shout on or register for a free business health check – maybe we can help you.
This article was written by Peter Lawless, founder of 3R Sales and Marketing – www.3r.ie. For previous articles like this, visit 3R’s Articles. Alternatively, subscribe to Success our free monthly Information Bulletin with sales and marketing articles.