Are You Leaving Money on the Table?

money on the table.jpeg

Earlier this week we wrote about scale. Specifically, we wrote about scaling those marketing programs that you know are working.

Too often, marketers leave money on the table. And they don’t even know that they’re doing this.

Why? Because they aren’t scaling. They aren’t even trying. And there are a few reasons for that.

1. Next Big Thing Syndrome

Whether this says something about the type of people who wind up in the marketing field or the way technology has hurt our collective attention span, there is a tendency in many marketing departments to spend far too much time chasing the latest and greatest solution.

You might think that this is a good thing, that we should be moving forward and staying on the cutting edge. Unfortunately, most companies don’t have the budget or the bandwidth to operate this way. And what happens too often is that we sacrifice those programs and channels that are proven and reliable, ignoring opportunities to grow.

Before moving onto the next big thing, make sure you’re getting as much as you can out of your existing campaigns.

2. Budget Mismanagement

A common issue in companies of all sizes occurs during the budgeting process. When we put together the marketing budget for the upcoming month, quarter, or year, we do it backwards. We start with at the top, picking a number of dollars to spend, and then work our way down to individual campaigns and programs to determine what percentage of our money we should spend where.

The proper way to build a marketing budget is to start at the bottom and build up. Create line items for each channel or program that ensure you are maximizing those opportunities before moving on to the next one and adding them all up. If you are limited by budget, the things that get cut should be the ones that don’t have the ROI or the scale to support your business.

To avoid leaving money on the table, get smarter about how you budget.

3. Lack of C-suite Buy In

It’s not the CEO’s or CFO’s responsibility to make sure your marketing is optimized. It’s the marketing department’s job to convince them that what you’re doing is working. If you are able to do that effectively, there will be no hesitation to spending the money.

What often happens when there is opportunity to double-down on efficient marketing programs is that marketing stands there with their hands out, but those in control of the finances say no. It’s not because they don’t want to grow. It’s because we didn’t do our job to sell them on the potential of our plans.

To get C-suite buy in for those marketing programs that are working best, it is important to learn how to develop detailed plans and presentations. You want to show them exactly what value you can provide the business if they invest in your ideas.

4. Poor Execution

The last, and, unfortunately, most common reason marketers leave money on the table is simple lack of execution. In this case, the marketing team gets the buy-in they need, correctly measure ROI and chooses to invest in the right areas. But they go about growing their budgets in the wrong way.

To effectively scale, it is important to recognize what has succeeded to this point. Simply spending more money isn’t enough. You have to spend it in the right way. This means identifying the specific reasons for success – whether it’s the proper targeting, the right creative, or offers.

If all you end up doing is spending more to get the same results, you will have failed in your efforts to grow the business. So learn how to execute at scale if you want to succeed.

Do You Know Your Margins?

askus.png

In general terms for business managers, margin refers to the difference between the selling price of a good or service and the cost to the business that good, most commonly expressed as a percentage of the selling price.

Calculating Your Margin

In practice, this means we take the average price per purchase of any item, and divide the cost of that item by that sale price. For example, if you sell widgets for $20, and it costs you $15 per widget, your margin is 25% (20 – 15 = 5 / 20 = .25)

When calculating your margin, you only want to use variable costs. Variable costs are those costs that change as you sell more goods or services. Fixed costs are things like your building and any staff that you would have regardless of how many goods or services you sell.

For most companies, it’s not as easy to simply say, “we sell this one thing for one price, and it costs us this much every time”. So the easiest way to calculate will be to take total revenue from sales and total variable costs over a period of time. For example, if last year you generated $100,000 from widget sales, and it cost you $70,000 to market, produce, and service those widgets, your margin was 30% (100,000 – 70,000 = 30,000 / 100,000 = .3)

Why Margins Matter

Margins matter because you need to know how much money you make for every item you sell, after costs. If you spend more than you make, you will never turn a profit. The bigger your margins, the more room you will have to grow and invest in the future.

Most businesses or industries set margin targets, or benchmarks. If your margins get too small, you have less room for error. Then it might be time to cut costs or raise prices.

Businesses with the biggest margins and the highest sales volume will end up being the most profitable.

Marketing Contribution

For marketers, one metric we want to know is marketing contribution. This is a form of the margin that ignores all costs except for marketing.

Marketing contribution is similar to ROI, just expressed as a percentage of revenue. It tells you and your company what percentage of revenue you are spending on marketing, so you know how much you can afford to spend on other things – like service and development.

In the example above, let’s say that $30,000 of the variable cost was marketing. That means your marketing contribution is 70%, or that marketing costs represent 30% of total revenue.

Again, it is common for businesses to set targets for marketing spend as a percent of total revenue. It will vary by company size and industry – but general targets range from 20-40%.

What is a Click Worth?

click.png

As a marketer, you should know how much you spend to get each click on one of your ads. That basic cost per click (CPC) metric is at the core of digital advertising.

The lower the cost per click, the better, because it means that you’re driving more traffic to your website at a lower total advertising cost.

But if you really want to understand how your CPC relates to business success, the other thing you should work to understand is what a click is worth. Once you know what each click is worth, or a “revenue per click”, then you know how effective you are at turning those clicks into customers.

Calculating Click Value

To calculate the value in revenue dollars per click, you need to work backwards from revenue.

Let’s say a particular marketing campaign produced 1,000 sales at $100 per sale, that’s $100,000 in revenue. Then let’s say your conversion rate (defined here as the percentage of visitors that ended up buying from you) is 1.00%. That means you get 1 sale for every 100 people who visit your website. And if each sale was worth $100, then you make $100 in revenue for every 100 people who visit your website.

All that means that each click (which brings a potential customer to your website) is worth $1 to your business. This is your click value, or revenue per click.

What Can You Afford to Pay?

Once you know your click value, you know what you can afford to pay for each click.

Using the example above, where each click on your ad is worth $1, you can better judge your cost per click. If the CPC is $2, you know you’re losing $1 with each click. If this is the case, you are going to go out of business.

If the CPC is $0.50, you’re making $0.50 after marketing costs for each click. This is a more sustainable model.

Knowing what you can afford to pay for each click not only lets you judge current performance, if gives you a roadmap for future optimization of the campaign.

Machine Learning: What Will it Mean for Marketers?

learn.jpg

The next wave of computer technology is upon us – and it’s Machine Learning. And if businesses want to succeed in the marketplace of tomorrow, they had better understand what machine learning is and how it can be applied to their business.

The danger of waiting is that your competitors, or some future company that does not even exist yet, will use machine learning to disrupt your industry and drive you out of business.

What is Machine Learning

Machine learning is a field of computer science that gives computer systems the ability to “learn” with data, without being explicitly programmed. It is an extension of artificial intelligence, which uses pattern recognition and computational learning to help solve problems better than humans ever could.

To most of us who are not actively studying or working in this field today, it might sound a little like science fiction. But computer technology is racing forward, with very real applications of machine learning already in place today.

Why Machine Learning

The reason that machine learning is so popular right now is a combination of the technological progress made in recent years and the potential it holds for a large swath of fields. For companies who are going to lead the way on innovation, the opportunities to deploy machine learning across their organizations is enough to excite everyone from board members, to executives, on down the line.

Machine learning will make decisions – both day to day and long-term strategic decisions – faster and better than humans. It does this by analyzing all of the data available to it using algorithms that get smarter over time.

What Does This Mean for Marketers

For marketers, machine learning will mean that some of the most complex parts of our job will get much easier. Machine learning might be used to:

  • Optimize who we target with our advertising, by analyzing who is most likely to become a paying customer on an individual basis
     
  • Write promotional copy that speaks directly to each person in our marketing funnel, by understanding the right combination of persuasion and emotion to use to convert new customers
     
  • Identify customers who are most likely to become repeat buyers and intervene with special offers at the right time to advance their loyalty
     
  • Intervene with users who we are at greatest risk of losing to competitors with a promotional offer that keeps them coming back
     
  • Recommend new products and services that our customers are most likely to purchase from us based on customer behavior and competitive offerings
     
  • Determine the appropriate price of everything we offer to maximize sales or profitability, including when and where to use promotions to spur greater levels of activity and address local or seasonality slowness

The above list just scrapes the surface of what might soon be possible with machine learning. To take full advantage, companies need to invest in research, data collection, training for current staff, and hiring experts. The time to start is now, because the sooner you can make strides in this field, the larger your advantage over the competition will be.

What Are Your Key Performance Indicators?

going up.jpg

How do you know if your business is doing what it is supposed to do? How do you know if you are doing well or not?

Sounds like an easy question to answer, doesn’t it. But for too many companies, it is not so black and white.

But it should be.

What Are Key Performance Indicators?

Key Performance Indicators (or KPIs) are the business-defining metrics that you will use to answer the questions posed above. And the only person that can tell you what those KPIs are, is you.

Each industry and each company might have different ones. You might have just one of you might have five. They might be focused solely on revenue or they might be focused on new customers.

Not Just Any Metric

The key is in the name – Key Performance Indicator. This is not just any metric. This is the one that gets right to the heart of success. If the metric is positive, you are doing well. If not, you have work to do.

A good test to decide whether a metric is truly a KPI is to think about a situation where said metric was moving in the right direction, and yet the company itself is moving in the wrong direction.

For example, let’s say you choose a new customer metric. Is it possible that you could be seeing strong growth in new customers, but at the same time see shrinking revenue? If so, than new customers alone is not a great KPI.

Can You Have Too Many KPIs?

Yes. Most businesses will have more than one. But it is important to limit it to as few as possible.

Why? Because the more metrics you have to look at to determine the overall health of your company, the more difficult it becomes. They don’t have to tell you what’s wrong when things are wrong, that’s what analysis is for.

A good rule of thumb is to keep it to 5 or fewer.

In Conclusion

KPIs are the metrics that you use to answer the question, “how is the business doing?” They should be readily available and easy to understand and explain.