How to Calculate Critical Marketing Key Performance Indicators | Digital Marketing Best Practices
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How to Calculate Critical Marketing Key Performance Indicators | Digital Marketing Best Practices


Hey guys, thanks so much for watching. So today I want to talk to you about a
really getting to know the numbers in your business because ideally we want to
be able to run our business like it’s a machine. We want to know
exactly what all the, the quantifiable goals are within our
business and how to grow the business and how to sustain the business. So we’re going to talk about some of the
essential numbers that you need to know in order to run your sales
and marketing strategy, right? But before we get started with that, if you’re watching this
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well. So to get back into the topic, what I want to, what I want to discuss here today is the
key to really understanding how to grow and scale your business. And I’m not going to talk necessarily
about marketing or sales tactics right now, but what I really want to get across, what I want you to understand is the
idea of knowing your numbers so that you know how much and where to invest your
time and money so that you can grow your business the way you want to. So some of the key numbers that
we’re going to talk about here, and they’re going to be some,
some acronyms, so stick with me. So one of them we’re going
to talk about is ROI. Now that stands for return on investment. That’s probably not a new term for you. That’s probably the most familiar thing
that we’re going to talk about here. Another thing that we’re going to talk
about is KPI and that’s a key performance indicator, right? Sometimes we consider
those to be a lead and lag measures, things that have to do with inputs
and outputs in your business, right? And we want to know what they are so that
we can track them throughout the day, throughout the week, throughout
the year, whatever the case may be. Another number, another acronym that I’m gonna throw at
you is one called customer acquisition cost. So that’s going to be really,
really important. That is literally the, the dollar amount that it costs
you to acquire any new customer. So it’s really, really important, especially if you’re talking
about advertising and
especially if you’re talking about placing a valuation
on your business. Anybody that comes in is want to
buy or invest in your company, is going to want to know if we
need to add X dollars in revenue, what does that going to cost
us in a marketing investment
and in order to do so. So that’s a really
important, uh, acronym, uh, an important number that
we’re going to track. Another one is a number or it’s
an acronym that we call LTV, that’s lifetime value. Another way to write that is
CLV customer lifetime value. So you need to understand exactly how
much money you make on a customer’s entire association with your business. Um, sometimes that’s looked
at on an AC V level, an annual customer value, uh, in, in different cases that might be a more
appropriate number to base some of your projections and some of your,
uh, some of your planning on. But typically we look at one of these two, either customer lifetime value
or an annual customer value. All of those things are
going to go into, uh, some ratios that I’m going to talk to you
about that will help you determine the health of your sales
and marketing process. So you got those kind
of framed in your mind. So let’s talk about how you would
actually put these into action, how they become a part of your marketing
plan. So let’s say for example, you’ve got a stellar marketing strategy.
You’ve got the tactics in place, right? You’ve got a, you’ve got the channels
plugged in. If you don’t have it, all of those things figured out this
stuff isn’t going to be super useful to you. Kind of a chicken
or the egg thing here. And if you have all that stuff figured
out what you don’t have that stuff figured out, then this what I’m about to talk about
is going to be much less effective. So let’s just say for example, we have a lead source that we are really
confident in a lead or potentially, and I’ll even go one step higher, right? Let’s start with a traffic source, right? That is where are we going
to get our traffic from? Whether that’s foot traffic
in our retail business, whether that’s web traffic
from our digital marketing, or perhaps that’s just interested eyeballs
at whatever venue or event that we’re focusing our attention on. And then what that’s going to
do is that’s gonna feed into our lead flow, right? These people are going
to become leads, right? It’s going to be a smaller number. Then there is a pier, right? So this might be, you know, a thousand people equals
a hundred actual leads. Bear with me, we’re getting someplace. So then when they get to the little bit
lower down the funnel we’re going to have, and we might call this,
everyone turns these differently, but you might call this prospect, right? And for every hundred leads
we might get say 10 prospects. You can see that this number is getting
smaller and smaller and smaller. And this then turns into a customer. And at this point, this is
where we get our one customer. And so you can see that some numbers
and some ratios are already developing here. You know that for every 1000 people
that come through your initial traffic source, a hundred of them become leads, 10 of them become prospects and
one of them becomes a customer. So you could easily take
this ratio here and say, Hey, because this is working really
well because our funnel, and to draw this into a little bit
more visually understandable way. When I use the term funnel to get one
new customer out of the bottom of our funnel, we’ve got to figure out how to get a
thousand people from our traffic source. Again, whether that’s from
social media, from SEO, from mailers, whatever it is, we need to get a a thousand
interested people who want to, who want to learn more about you
and your business or organization, and if we feel comfortable about the
process where we’re able to take them from lead to prospect and turn them
into a customer predictably, then it’s very simple. All we need to do is then figure out
how to acquire a thousand interested people. Now the next important
question is then, well, how much can we reasonably spend in
order to get though that number of interested people? Right? That’s an important number to figure
out is how much can we afford to spend? Well, what we need to figure out first is this
customer lifetime or annual customer value number, because we need to know how much we’re
gonna earn in order to determine how much we can reasonably spend
to acquire that customer. So let’s take a perfect world and say
that it is $1,000 that we’re going to make from each specific. And let me do some different colors here
that help illustrate this a little bit better. So let’s say it is $1,000 that we’re
going to earn off of each customer. Well, you can easily see what
we then need to do, right? If it’s $1,000 is the value per customer
your customer lifetime value or your annual customer value ever.
You’re looking to your, your, you’re looking to see that, well then
we need to divide it by 10, right? So that means because we need 10
prospects to create one customer, therefore each prospect is worth $100. We’re willing to pay $100
to create a prospect. And then you have a $10 value for each
lead because you need a hundred of them to equal one customer, and
then of course at the top, that brings us to a nice round number of
$1 that we value each individual person that comes through this traffic
source at the top of the funnel. Now, that’s not the complete picture because
what that tells you is how much this one person coming through the
traffic source is worth to you. That does not tell you how much that it
is that is that you value or how much, excuse me, that you can
afford to pay for that. You have to pay a lot less than a dollar
per traffic per per person that comes through your traffic source. If you’re going to make any money
off of this down here, right? You can’t spend a dollar to acquire a
thousand acquire one customer because then you’ve got to make a thousand and spend
a thousand that doesn’t make any sense, right? So now you’re going to have to do a lot
more digging than what we’re going to talk about over the course of this
video to determine your margins, right? In order for you to make profit.
But let’s just say for example, that you can afford or that
you can generate one traffic, one piece of traffic,
one person, whatever. You want to look at that for 10
let’s use a different color for this. And you can do that for 10 cents, 10 cents, right? So you spend, it costs you 10 cents to get
one person to come through this. This funnel, multiply that by 10 because it’s 10 times
more expensive to acquire a lead than it is to acquire one person
coming through the traffic. So that means it’s going to cost you $1
to acquire lead times 10 it’s going to cost you $10 to acquire
a customer, or excuse me, to acquire a prospect, and then it’s going to cost
you $100 to acquire a customer. And so now we have a ratio.
Now this is all fear reticle. If you can acquire a customer for one
10th of the cost that you make on that customer, depending on your industry and your
business and what’s your margins are, that’s really, really good. That’s a 10 X return on your marketing
spin. There’s that number there. So we have an ROI of a thousand percent
a 10 X return is a 1000% return on investment. Your customer
acquisition cost, your CAC in this example is, Oh that one is $100 you can acquire a customer for $100
and let’s say this is lifetime value, not just annual customer value, but
this is customer lifetime value. Let’s say that according to this, the annual customer value is $1,000 that
we determined already and so what you have is a C a C to C L V ratio of
100 to 1000 use your use your reduced fractions like you learn how to do an
elementary school and so what we have is a one to 10 ratio of
customer acquisition costs. We can acquire the customer for
$1 and we make $10 out of it. It’s a one to 10 ratio of CAC to LTV. Now, if based on the other
costs that your business incurs, that means there’s profit in all reality. This is going to be what you
have to acquire a customer for. Because if you make say 20 or
30% margins, which is great, and a lot of businesses, you’re actually walking away with a
one to two or one to three ratio of uh, in terms of your customer acquisition
costs and the profit that you’re going to earn on that customer. If you,
I’m telling you right now, if you told me there was a business that
I could spend a dollar and make $3 in profit, I’m gonna do that all day long. And there’s a lot of savvy business people
that have figured that out. Exactly. And so you can see that we’ve actually
gone through a lot of different things here that we need to, we need to figure out in
order to determine our
businesses numbers or at least our sales and marketing processes numbers. If you haven’t gone through
this process with your team, I strongly urge you to do so.
And if you need help doing that, we’ll then, I’ve love to
talk to you about this. And in addition that if you have done
these numbers and you know roughly what you need to spend in order to
acquire a customer, but you say, we’ll read, I have no idea how to
do this, this, this, or maybe this. Maybe I can sell pretty well, but I don’t know how to create prospects
or leads or to generate traffic. Then we especially need
to have a conversation. We’ve got a lot of packages
that that range from, you know, half day workshops where we’ll help you
figure all this out in addition to how you can get your team working or yourself
working to then then go and execute a plan that we put together all the way
through a monthly and weekly engagements. We’ll work with you every single week to
make sure that not only do you know all these numbers and how to do this, but that you can execute it and
that you executed the right way. So if that’s something that you need,
I strongly urge you to reach out to me. At the beginning, all we’re going to do is sit down and
have a conversation about how we might work with you and if we can even help. But hopefully this has
been a value add to you. And if you think this would
be valuable to somebody else, I ask that you please share it with them, send the link to them or leave their
name or mention them in the comments that’ll bring them in and let them be
able to see a, but if you like this, um, then I really appreciate you
watching it either way. Um, so, so if you have any questions,
let me know. Thanks so much. And I’ll see you on the next video.

About Ralph Robinson

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