For every $1 you invest in marketing you get $10 in sales.
Invest $5,000 per month? Get $50,000 or more back in sales.
That is the ultimate goal of marketing. You want a profitable return on investment.
Use these simple formulas to drive more leads, more sales and a profitable marketing machine.
Who is this for?
Owners and managers of service businesses. This is for businesses who use their marketing to generate leads.
Why am I reading this?
Using these formulas will help identify where you should be focusing your marketing effort to get the best results.
The Magic Formulas
Three simple formulas to measure your marketing performance.
The Leads Formula
Website Traffic x Website Conversion Rate = Leads
Website traffic is simply people visiting your website. If you increase the number of people visiting your website you will see an increase in leads and sales.
Website conversion rate is simply the percentage of people who visit your website and then make an enquiry. They contact you and become a lead.
For many websites there are opportunities to quickly increase web conversion rate. Any improvement you can make immediately increases your leads, sales and profitability.
Here is an example:
Imagine your website gets 1000 visits per month.
It converts 10% of visitors into leads. That means it delivers 100 leads per month.
Now you make some changes to your website and your conversion rate increases from 10% to 20%. So even though website traffic has not changed, you are now receiving 200 leads per month.
|Website conversion rate||10%||20%|
Your leads have doubled!
All you have done at this stage is make some changes to your website. You haven’t spent any money on increasing traffic.
These results are realistic for some websites. We have worked with clients who have increased leads simply by making minor changes to their web design and content.
As you can see, website conversion rate is a “Big Lever”. It allows you to generate big results with relatively little effort.
Check out our tips for how to improve your conversion rate in another post.
Once you have maximized your conversion rate, then it is time to invest in website traffic.
You can increase traffic through:
- Search Engine Optimization (SEO)
- Local SEO (Google My Business)
- Google Ads
- Facebook Ads
- Social Media
The key to getting a strong return on your investment in marketing is to do it in this order. Maximize your conversion rates first. Then spend money on traffic, confident you can convert that website visitors into leads.
The Sales Formula
Leads x Sales Conversion Rate = Sales
Leads are simply the people who have contacted your business in some way and made an enquiry.
Sales conversion rate is simply the percentage of leads who convert into sales. These are the people who become customers.
The other “Big Lever” is your sales conversion rate.
By improving your ability to convert leads into customers you will increase revenue and profit.
Let’s go back to the example:
After working on your website conversion rate you are receiving 150 leads per month.
If you convert 40% of them to customers you will win 80 customers per month.
But if you can increase your sales conversion rate to 60%, your sales increase to 120 per month. Your sales have increased by a half!
|Website conversion rate||15%||15%|
|Sales conversion rate||40%||60%|
To do this you need to focus on sales training. Little changes to what you say to leads, how you say it and when you say it can have a big effect on sales.
Your sales process is internal and probably separate from your website. You may do it yourself or you may have a team.
But whoever converts leads into sales, they will improve their conversion rate with sales training. Small improvements in your sales skills can have a big effect on revenue and profit.
Return On Investment Formula
Revenue / Marketing Expenses = Return on Investment
Return On Investment (ROI) measures how effective your marketing has been. You need to know how much money you made from your marketing investment.
Depending on how your business is set up, you may have a very accurate idea of how much revenue came from each of your marketing activities, or you may need to use your best estimate.
But it is important to have a revenue figure you can use.
Take that Revenue number and divide it by your marketing costs.
Include agency costs, ads costs, seo costs … everything.
Here is an example.
Imagine an electrical business that invests $5000 per month on digital marketing. They estimate they make $40,000 per month in revenue from the leads generated.
40,000 / 5,000 = 8
We can say that their Revenue is 8 times what they spent on digital marketing.
We express this as 8X.
What is a good ROI?
It depends on your business and industry. But for most service businesses, a return of 5x should be considered a bare minimum.
At 7x to 8x you are probably running a profitable marketing engine.
At 10x or better you are probably doing great. It is highly likely you are running a very successful marketing operation.
Are you ready to use the magic formulas in your business?
Get the free spreadsheet for calculating the Magic Marketing Formulas in your business.
Create a free Rise Local account and get instant access to the spreadsheet.
You will also find a bunch of other tools, reports and tips you can use, all free of charge.