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As a small business owner, I'm constantly juggling multiple tasks and wearing many hats. One of the most critical aspects of my role is ensuring that my marketing efforts are not only effective but also generating a solid return on investment (ROI). Understanding and optimising my marketing metrics can seem daunting, but it's essential for driving growth and achieving my business goals.
In this turbulent economic climate we're living through, every marketing pound (or euro, or dollar) counts, so being able to measure the effectiveness of your marketing efforts can make the difference between sustainable growth and financial strain.
For small and medium-sized businesses (SMBs) like mine, creating the next marketing campaign is one thing, but understanding the return on investment (ROI) from marketing activities is crucial to making money stretch further.
With this blog I wanted to explore some of the key marketing metrics SMBs should be using on a regular basis. Be warned, there's a bit of maths involved.
Over my 20+ years career in marketing, these are the calculations that are the most effective for small to medium businesses.
As such, I strongly believe these are the metrics you should be tracking within your business to assess the success of your marketing campaigns and provide practical insights on how to optimise these efforts for better returns.
Understanding Marketing ROI
Simply put, marketing ROI is a measure of the profitability of your marketing efforts. Obviously if you're investing money into your marketing campaigns, those need to generate a return on that investment.
It is calculated by dividing the net profit attributable to marketing by the total marketing investment.
The formula is:
A positive ROI indicates that your marketing campaigns are generating more revenue than they cost, while a negative ROI suggests that your marketing expenses are exceeding the profits.
Optimise Your Marketing Metrics
To effectively measure marketing ROI, SMBs should focus on tracking a combination of quantitative and qualitative metrics.
Here are some key metrics that can provide a comprehensive view of your marketing performance:
1. Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is the total cost of acquiring a new customer, encompassing all marketing and sales expenses. Understanding your CAC helps you evaluate the efficiency of your marketing efforts.
Lowering CAC while maintaining or increasing customer acquisition rates indicates a more cost-effective strategy, ensuring that you’re getting the most value from your marketing budget.
Bear in mind that acquiring a new customer can cost up to 5x more than retaining an existing customer.
Increasing customer retention by just 5% can increase profits from between 25 - 95%. The success rate of selling to a customer you already have is around 60 - 70%, while the success rate of selling to a new customer is considerably lower at between 5 - 20%.
How to Calculate CAC
2. Lifetime Value of a Customer (LTV)
The Lifetime Value of a Customer means the total revenue a business expects to earn from a customer over the lifespan of their relationship.
Comparing LTV to CAC gives you insight into the long-term profitability of your marketing efforts and customer base. It can also reveal whether the efforts you put into customer acquisition are sustainable.
To ensure long-term growth and profitability,your LTV should be significantly higher than CAC.
How to Calculate LTV
LTV = Average Purchase Value x Average Purchase Frequency x Customer Lifespan
3. Conversion Rate
Conversion rate looks at the percentage of visitors coming to your website or landing page who take a desired action, such as making a purchase, signing up to your newsletter or filling out a form. This is measured over the course of your marketing campaign.
High conversion rates indicate that your marketing messages and calls to action are effective. Tracking conversion rates across different campaigns can help you identify what works best.
How to Calculate Conversion Rate
4. Return on Ad Spend (ROAS)
Return on Ad Spend looks at the revenue generated for every pound you spend on advertising. ROAS helps you evaluate the effectiveness of your advertising campaigns so you can see what works, and what doesn't
A high ROAS means your ads are generating substantial revenue relative to their cost, allowing you to allocate your ad budget more efficiently.
How to Calculate RoAS
5. Click-Through Rate (CTR)
This is important, particularly if you use online or paid ads. CTR looks at the percentage of people who click on your ad or link after seeing it while browsing.
CTR is a good indicator of how well your ad or content resonates with your audience as a higher CTRs suggest that your message is compelling and relevant.
How to Calculate CTR
6. Social Media Engagement
Assuming you operate some social media accounts, then the engagement you receive can also be used to make decisions about your marketing campaigns.
This isn't about how many posts you make, but rather the engagement they receive.
Engagement indicates the effectiveness of your social media efforts. High engagement rates can lead to increased brand awareness and customer loyalty and is measured as the level of interaction your social media content receives, including likes, shares, comments and follows (but not necessarily followers).
How To Track Social Media Engagement
Unlike those mentioned so far, there isn't a clear formula for this, but instead you can use platform-specific analytics tools to measure engagement metrics. These will differ depending on the platform you're using.
It's also worthing noting that some platforms, like Instagram, have a specific 'business' accounts, rather than personal ones, than give you much more insights and analytics.
7. Website Traffic
Website traffic looks at one of the easiest sets of data you can monitor, which is the number of visitors to your website.
It's important to understand that websites don't exist in isolation. Just having a site, however well designed it might be, it doesn't guarantee you'll get visitors in the same way having a physical shop doesn't guarantee customers. You have to drive people to it through your marketing efforts (and some SEO).
Once you have them though, tracking website traffic helps you understand how effective your marketing campaigns are at driving visitors to your site.
Analysing those traffic sources can also help you identify which channels are most effective.
Again, there's no definitive formula here to track it accurately, but you can use tools like Google Analytics to monitor traffic metrics over the period of time you're monitoring.
8. Bounce Rate
Bounce rate is the percentage of visitors who come to your site but leave (or bounce) after viewing only one page.
Whilst many of the metrics so far are focussed on getting them higher, bounce rate needs to be as low as possible.
Your bounce rate will vary by the industry in which you operate but, on average, your bounce rate should be between 30-70%, and anything below 50% is generally considered to be excellent.
There isn't one reason why anyone leaves a site, but a high bounce rate may indicate that your website content isn't engaging, there isn't enough of it to keep people interested, navigation isn't clear or the user experience (UX) needs improvement (or any combination of the above).
Whatever the reason, lowering your bounce rate can lead to higher conversion rates as people will stay on your site longer, which gives you more chance to sell them your products or services or get them signed up to newsletters.
How to Calculate Bounce Rate
Optimising Your Marketing Efforts
Once you have a handle on these metrics, the next step is to use them to optimise your marketing strategies.
Here are some tips for leveraging your data to improve marketing ROI:
1. A/B Testing
A/B testing involves creating two versions (an 'A' and a 'B') of a marketing asset, whether that's an ad, email campaign or landing page and comparing their performance.
This helps you identify which elements (such as headlines, images, or calls to action) resonate most with your audience allowing you to create the best version of it.
2. Personalisation
Tailor your marketing messages to different segments of your audience. Not every customer will react or engage with your marketing campaigns in the same way, so why rely on generalities to make them a success.
You can now use data such as demographics, past behaviours, previous sales and preferences to create a much more personalised campaigns that are more likely to convert.
3. Focus on High-Performing Channels
Analyse your metrics to identify which marketing channels (e.g., social media, email, search engines, etc.) are driving the most traffic, conversions and revenue.
Remember that not all channels are created, or perform, equally well. Once you've identified the ones that work, allocate more resources to these high-performing channels to maximise your ROI.
4. Improve Content Quality
High-quality content is crucial for engaging your audience and driving conversions. Invest in creating valuable, relevant and compelling content that addresses your customers' needs and interests.
5. Enhance User Experience
A seamless and enjoyable user experience on your website can significantly impact your conversion rates.
Ensure your site is easy to navigate, loads quickly and is mobile-friendly (i.e. responsive).
Regularly update and optimise your site based on user feedback and analytics.
6. Retargeting
If you utilise online ads in your marketing, then retargeting involves showing ads to people who have previously visited your website or interacted with your brand.
This can help you stay top-of-mind and encourage potential customers to complete their purchase.
7. Leverage Automation
Marketing automation tools can help you streamline and optimise your marketing efforts.
Use automation to manage email campaigns, social media posts and customer follow-ups, allowing you to focus on your strategic activities.
Conclusion
“Blessed is the man who finds wisdom, the man who gains understanding, for she [wisdom] is more profitable than silver and yields better returns than gold. She is more precious than rubies; nothing you desire can compare with her.” - Proverbs 3:13-15
Measuring and optimising marketing ROI is vital for SMBs aiming for sustainable growth.
By tracking key metrics such as those mentioned above, you can gain valuable insights into your marketing performance. Information that is real and not just based on guesswork and assumptions.
Use these insights to refine your strategies, focus on what works, and make data-driven decisions that enhance your marketing efforts.
Investing time in understanding and optimising your marketing ROI will not only help you allocate your budget more effectively, but also ensure that your marketing activities contribute positively to your bottom line.
I've seen a lot of over changes in my time and, as the marketing landscape continues to evolve, staying agile and informed will be key to maintaining a competitive edge and driving long-term success for your business. #BelieveInSuccess
I hope that these metrics will give you a real insight into how your marketing efforts are performing, but I'd love to know what you think. What marketing metrics do you find are the most useful? Which have given you the most insight? Have I missed any? Are there any you use that I haven't included here? Let me know in the comments below?
If you're planning your next marketing campaign and need some expert help from P45 Consultancy, then just complete the form below or get in touch with us via this site and let's have a conversation.
Assuming your brain isn't too frazzled by all the maths, then one 'take away' you can make is to show your appreciation by buying me a virtual coffee by clicking the button below. That always 'adds' up to good 'times'. Feel free to 'share' this too. Thank you
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