Marketing, by nature, comes with an amount of uncertainty. Small business owners often ask us questions like “how will I know if my marketing is ‘working?’”
In years past, this was harder to answer. But here we are, in the Data Age, where a large portion of marketing happens online. Measuring the effectiveness of your marketing is easier than ever.
However, there are two caveats to be aware of when it comes to attaching metrics to your marketing efforts:
- You need a large sample size over time to measure anything reliably (six months is the prescribed period of time for most, but not all, forms of marketing)
- Other factors affect the numbers, so the numbers are not 100% definitive
So the numbers are not always reliable. For example, an increase in leads or conversion rate doesn’t necessarily mean your new marketing campaign is “working” – how do you know you’re not attracting more leads – and better leads – because you’re doing a great job and your customer are speaking highly of you?
Solving the marketer’s dilemma
What we often see is that the local companies who are investing in, say, web marketing are also growth-oriented and business-savvy. That means that they’re often doing other things right at the same time, such as:
- investing in other effective marketing strategies
- providing a strong value and great customer service, which brings them repeat customers and improves their word-of-mouth marketing
- targeting the right customers
- using effective messaging
- using effective branding
So it’s hard to tell if growth is coming from a specific marketing strategy, sometimes. However, the questions below do bring up data that makes it obvious where improvements are coming from.
They’ll help you break down your numbers by specific strategies, and calculate the most important number of all for measuring marketing effectiveness: Return-on-investment.
This, in turn, will help you determine what the best strategies available to you are.
8 questions to ask yourself – in order
1. How many leads am I getting?
This is one of the obvious measures of marketing effectiveness. Be sure to count the number of leads you’re getting through each marketing channel, as well as the total number of leads.
2. What is my conversion rate?
You can break down your conversion rate for each channel, and also calculate your overall conversion rate.
Once you have this info, you can set a realistic goal for improving your conversion rate. Then, you can use the questions below to identify which marketing channels to scale/maintain/alter/eliminate.
3. How valuable are the leads I’m getting through each channel?
If you really want to grow, you have to think beyond the obvious measures of leads and conversion rates. Looking only at leads and conversion rates can actually hurt your profits.
That’s because your most profitable sales could, theoretically, come through a marketing channel that has either a low number of leads or a low conversion rate.
The value/quality of a lead is going to be different for every business, but you can explore the value of leads in depth in this article.
A few things that you can take into account are a lead’s willingness to spend, the profitability of the products/services they’re interested in, and the cost of maintaining the relationship.
For example, you might compare the customers you acquire through email marketing to the customers you acquire via Facebook, and find that one channel brings you customers that are consistently:
- more focused on value than initial price
- easier to communicate with
- interested in being long-term customers
4. What is the ROI for each marketing channel?
Return-on-investment is the ultimate measure of marketing effectiveness, and it’s the story we’re really trying to get to with every other question on this list.
ROI can be understood as the difference between the cost of your marketing efforts and the overall profits they reap:
(Total sales gross) – (cost of your whole marketing funnel) = ROI of your marketing engine
To break it down to individual channels, you’d run something like this:
(Total sales gross through strategy X) - (cost of marketing strategy X) = ROI of channel X.
This will further inform you about the effectiveness of each strategy, so you can make decisions about which ones to change, scale down, or scale up. See questions #6 and #7 for more on calculating ROI.
5. What is the upfront cost of this strategy?
As much as ROI matters, not every business is in a position to always pursue value over price. In some cases, cash flow might prevent you from investing in marketing that will offer the greatest return.
A business should always choose the highest value it can afford, but sometimes, the greatest value is a long-term proposition that’s out of the picture. Massive growth in the long term doesn’t necessarily help businesses that need to scale in the short term. A bird in the hand can be worth two in the bush.
6. How much does each lead cost to acquire? (CPL)
To get a better picture of your ROI, you can look at Cost-per-lead, or CPL. You can break this down by channel - just measure the cost of one marketing strategy, and divide it by the total number of leads.
This will tell you how much each lead costs you, on average. Once you know this, you can calculate how much you need to make on your average sale in order to turn a profit.
This will help you make an informed decision about which strategies to scale up/down, maintain and eliminate.
You can learn more about the ins-and-outs of CPL with this article.
7. How much does each lead cost to acquire + convert? (CPS)
Your cost-per-sale is a little more complex than CPL. It requires you to calculate how much time and money is being spent to convert a lead once it enters your sales funnel.
When you break down your CPS for each of your marketing campaigns, you end up with numbers that reveal how profitable each channel really is. In this context, ROI is ultimately the difference between your Average Sale Total and CPS.
Calculating CPS is actually quite simple. Remember, this is an average. Just take a set period of time – like, say, one month or one year– and total up time spent by your sales team on leads from one channel. Note: make sure to include the time for all leads, not just the leads you convert.
Then, you can divide this cost up by the total number of conversions, and you’ll get the average amount of time your sales team is spending to get one conversion.
For a deeper exploration of CPS, you can see this article.
While this may seem more like a sales question than a marketing one, it will help you get a deeper look at the ROI for each channel. Perhaps a channel that brings you lots of leads and a good conversion rate is also bringing you customers that cost you twice as much to close - and is therefore less profitable.
If you want to copy+paste the above questions and work through them, here’s a list:
- How many leads am I getting?
- What is my conversion rate?
- How valuable are the leads I’m getting through each channel?
- What is the ROI for each marketing channel?
- What is the upfront cost of this strategy?
- How much does each lead cost to acquire? (CPL)
- How much does each lead cost to acquire + convert? (CPS)