Marketing Is Math
If you want cost-effective marketing, you need to know the three most important numbers in creating a marketing campaign. After all, marketing is math, not art. If you don’t measure the numbers in creating marketing campaigns, you may end up spending marketing money instead of investing it for higher returns.
• Break Even Point (BEP). What’s the revenue you need to achieve in order for your marketing campaign to just break even? I’m not talking about profit yet. Just no loss. Take the total cost of all your expenses for this campaign including labor cost. Then divide the cost by your average gross margin percentage. That should give you the revenue you need in order to break even. I had a client who set his sales targets for his team before calculating his BEP. Without realizing, he set his sales targets below his BEP. That’s why he was not making money. It seems that the marketing expenses for the campaign was too large that just reaching BEP was so difficult. He realized afterwards that he needed to revise his marketing strategy to lower the BEP to a level that was more achievable by the sales team. Thus, he reset his sales targets above the BEP to give him the desired profits.
• Acquisition Cost (AC). What is the cost of buying a customer? If you spent Rp 10 million on a full-page ad in a magazine and let’s say you get five new customers out of it, you know that each customer cost you Rp 2 million. The next question is: What is the profit of your first sale? If the profit of your first sale is greater than the cost per customer, then you’re winning the game of marketing. You can repeat the ad over and over again because, technically, you have an unlimited marketing budget.
• Lifetime Value (LTV). What is the total potential and actual spending of your customer over their lifetime with you? Lifetime value can be increased by increasing the frequency of your customers’ purchases or increasing the value of each transaction or getting your customers to refer other people to your business. If you measure this regularly, you’ll soon know which customers you can regard as A-class, which are B, C, and so forth. You will also know where are the potential for growth in your business. Many businesses spend too much time on getting market share but do not dig enough for wallet share. And as we all know, marketing strategies to get market share are usually much more expensive and unpredictable than those to get wallet share.
If marketing is math, then it helps to know your numbers. Knowing the three numbers above is a great start to having a cost-effective marketing campaign, higher return on investment, and a way to make calculated decisions based on facts instead of feelings.
Coach Cynthia owns an ActionCOACH Business Coaching franchise that guides businesses to select and implement effective and cost-efficient marketing strategies to increase your business results with a proven 17-week guarantee. For a free business health check, go to www.acsj.co.id