Investing in marketing is a cost for your business, so it makes sense to evaluate whether it is a worthwhile investment by measuring each marketing channel’s success.
Here’s a few factors to keep in mind when you’re using metrics to assess value – plus a reminder that metrics can get a little fuzzy around the edges, depending on how you allocate your marketing costs and associated income.
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In today’s video, I talk about some metrics you can use to check whether a marketing channel is worth investing in for your business – or not.
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Choosing the Marketing Channel You Want to Use
Before I get started, here’s a quick reminder of what I mean by marketing channel. A marketing channel is the avenue you are using to market your business, whether that’s through Google Ads, Facebook Ads, free social media posting and scheduling (such as using Hootsuite), email marketing, magazine-based advertising… and whatever the channel, metrics can be incredibly valuable.
A lot of people jump straight into choosing their marketing channels, but make sure you consider who your target person is and what your USP is first. These are steps one and two of my content marketing strategy. When you know who your target person is, you understand their wants, needs, fears and frustrations. And when you’ve got a really strong USP, you know exactly what differentiates your business from your competitors, and that it’s something that your target person really wants and needs. Spending a little time on steps one and two before you start choosing your marketing channels will help dramatically in terms of figuring out whether a channel is worth the effort – and investment.
Evaluating the Cost Per Lead
Once you’ve started using some of the channels that seem a good fit for your business, it’s a good time to test whether it’s been worth the investment. Imagine you’re getting some leads through the channel, you’re spending money on the channel, but is it worth it? (Note: If you haven’t identified some suitable channels yet because you are still working on steps one and two, the information that follows may not be that relevant to your right now – but it’s definitely worth returning to and/or keeping in mind going forward.)
First things first, I’m going to keep this as simple as possible: calculating the cost per lead. This calculation is super simple – you take the amount of money you’re investing into a particular marketing channel and divide it by the number of leads you’re getting.
Easy, right? Now you’ve got a cost per lead!
Measuring Your Conversions
What you’re working towards is figuring out how much money you’re getting out of a given channel through sales of your goods or services. If you’re not measuring your conversions from each marketing channel, you’re not going to be able to figure out whether the channel’s worth it.
You need to measure conversions from each channel, whether that’s through Google Analytics, your CRM system or some other method. Whatever your channel, make sure there is a helpful way you can measure conversions and identify how those conversions translate to paying customers – and how much they are paying you.
If you don’t have these systems set up in your business, you cannot measure anything; and if you’re not measuring, you’re not going to be able to tell how ‘worth it’ your marketing efforts are. You’ll just keep driving blind, which might be okay with you – maybe you’re getting enough business through the door and putting enough money in the bank – but if you want to push it, if you really want to know whether a marketing channel is working, you need to be measuring your conversions.
Assessing Your Marketing Channel: Is It Worth It?
So, you’ve got your cost per lead, you’ve got your conversions, and you know how much money you’re making from those conversions via your marketing channel. These are the kind of bare bones metrics that you need to determine whether your channel is worth it, because you can look at the income that you’re receiving and compare it to the amount that you’re investing into this channel… which allows you to answer the question, “Is it worth it?”
Look at the income figure – is it more than the costs? If the income is about the same as the costs of using the channel, and especially if it’s just a little bit higher, then keep going! That’s a good channel for your business and one you can work on growing. However, if the income is less than the costs, you might want to rethink that channel – perhaps it’s not a good fit for your business.
Even an income a tiny bit above your costs is the sign of a good channel because every single penny that you make is going into your business as profit. But – and there’s always a ‘but’ – there’s another aspect to consider first.
Making Sense of Fuzzy Measurements
Business is complicated, especially when it comes to marketing – and especially when it comes to evaluating the cost of marketing and the income from marketing, which can become a little ‘fuzzy’.
Consider an example. Let’s say you are using email marketing as your channel. You write blogs in order to produce the emails that go out. You don’t write the blogs yourself – you hire a writer to write the blogs for you (which is a cost). Then you’ve got the cost of the technology and everything as well. But the cost of that writer doesn’t just apply to this channel (email marketing), because the blog article is also going on your website, so it’s contributing to your SEO. So, in your little spreadsheet of costs, do you put it under SEO, or do you put it under email marketing?
This is the big question. This is what makes everything fuzzy when it comes to the costs of marketing, making it a little more difficult to give you a clear-cut, defined number that shows the cost of each channel.
This is okay – don’t panic! This is how businesses work – everything is interlinked. You are allowed to have fuzzy statistics; you just have to get a feel for them. This is where marketing starts to become more of an art and less of a science – you need to get a feel for whether the channel is generally working and whether it is contributing to your overall success.
Factoring in Lifetime Value
When you identify a great channel, your marketing decisions don’t stop there – in reality, you may be using a few different channels to market your business. This is fine, but it’s yet another way in which your marketing metrics can become fuzzy.
A key fuzzy feature to keep in mind is customer lifetime value. When a customer comes in and they buy from you that first time, you might be measuring that as the income from that customer. But if that customer then comes back a couple of weeks later and buys something else or uses your service again, or in a few months’ time, or in a year, that’s not ‘new’ income – that’s income that’s coming again from that same channel! That customer came in via a particular marketing channel, so any income should be attributed back to that channel.
This is customer lifetime value – how much value that customer has for your business over the lifetime that they spend money with you, which increases the income part of the earlier calculation, making the costs seem less intimidating because they are now more useful – they are responsible for generating more income for your business.
Embracing Fuzzy Metrics!
The way you calculate the value of a marketing channel is very customised to your business, and as a result it’s also customised to how ‘fuzzy’ you are comfortable with being when you assess the value of your marketing channels. Consider being open-minded about how you get a feel for each channel, and how specific and measured you want to be – and if you want to be more specific and measured, what other systems do you need to put in place to make sure that you’re tracking your metrics in the most helpful way?
It’s easy to get lost in the numbers, so I highly recommend that you top up your tolerance of fuzzy statistics. However, measuring the stuff you can measure is a great way to make sure that you’re comfortable with a channel and that it’s working well enough for you to continue investing in it.
If you want to explore the value of your marketing channels further, please do get in touch.