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Measurement

      The important number most small B2Bs aren’t tracking  Traditionally, marketing departments spent money on ads and campaigns that either yielded a return, or didn’t—but the days of operating as a cost centre are long gone. If you’re still using this outdated model, it’s time for a tune-up. When it comes to determining the success of their marketing efforts, many small B2Bs don’t know where to start, and often, they avoid the task altogether. If you want to stay in business, you’ll need to track to your metrics, and the customer acquisition cost (CAC) is a good place to start. Simply tracking the cost to acquire a customer will help you understand the return on investment (ROI) of your marketing efforts, and give you the baseline data you need to improve.   What is a CAC?   Put most simply, your customer acquisition cost refers to the amount of money it will take to convince a potential customer to buy from you. Understanding your CAC will help you determine the value of a customer, and therefore the amount that can be spent on attracting customers while still remaining profitable.   To calculate your CAC, you’ll need to divide your acquisition costs—marketing and sales tactics, for example—by the number of new customers in a given period. For instance, if your company spent $10,000 on marketing in a year and attracted 1,000 new customers, the CAC would be $10. An increase of 5,000 customers in the same year would be a CAC of $2.   Using your CAC  Once you have a dollar value to attach to your customer acquisition efforts, you can be far more strategic in your marketing and sales tactics.     Establish a baseline  You can’t effectively and strategically seek to improve if you don’t have an understanding of where you started. The CAC gives you a measurable metric and a number to beat.      Calculate return on investment (ROI)  Let’s say your CAC is $10. Next, you’ll need a sense of the average transaction size (total revenues divided by number of transactions). Of course, not all transactions are likely to be completed by new customers, so you’ll also have to determine your repeat customer percentage (a metric you should always be striving to increase). If your average transaction size is $300, that’s a good return on your $10 investment.      Optimize your return  Perhaps your return is weaker—or, even worse, less than your investment. By keeping a record of your CAC, you can make key adjustments to your strategy to achieve or maintain profitability.     Calculating and working with your customer lifetime value (CLV)  On the one hand, establishing your CAC is vital to understand your investment, but it’s only half the equation. Once you’ve attracted a new customer, it’s useful to be able to calculate their CLV—the projected revenue they will generate for your company over their lifetime. This number will let you measure the amount of time it will take to recoup your CAC investment.   Calculate your CLV by taking your average transaction amount and multiplying it by the average purchase frequency rate. This is the base customer value. Multiply by your average customer lifespan to get your CLV.   Boosting your profits  Once you’ve got a CAC and CLV in hand, you’ll want to start strategizing about how to boost your returns. The single best way is to focus on repeat customers. It costs five times as much to attract new customers as it does to keep existing ones. Put another way, “  it’s more than 350% more profitable to sell to an existing customer than to a new one  ”.   There are a variety of ways to boost your repeat customer percentage.     Capture customer loyalty   Publish highly relevant and useful content such as articles and webinars.     Nurture your customers  Customer relationship management (CRM) software can put data analysis to work for you in maintaining positive relationships.      Engage your customers  Use email marketing to stay in touch and engage your customers in the long-term.      Provide added value  Deliver feature enhancements to your product or service.     Incentivize  Everyone likes feeling like they’re getting a deal. Offer incentives, promotions, or loyalty programs to your customers.     Small B2Bs can’t afford to ignore their metrics. By calculating their CAC and CLV, they can begin making informed, strategic decisions about how to stay profitable while attracting new customers, and—more importantly—how to retain the ones they have. 

The important number most small B2Bs aren’t tracking

If you want to stay in business, calculating your customer acquisition cost (CAC) is a good place to start. Tracking the cost to acquire a customer will help you understand the return on investment (ROI) of your marketing efforts, and give you the baseline data you need to improve. 

      How to tell if your marketing is really working  Marketing is a complicated task. Many companies without a full marketing department will try one-off or on-a-whim tactics without having any sense of strategy or way to track their results. Even if they get lucky, they’re left without inside knowledge of what worked or how to replicate that success in the future. The result of this haphazard approach can be a very costly and ineffective marketing stab in the dark. Fortunately, there’s a fix. Simply measuring the effectiveness of your efforts through strategy, KPIs, and benchmarks will help guide your marketing success moving forward.  The elements of assessment  Checking in on the effectiveness of your marketing is no different from any other type of assessment: you need to define your goal, decide what variables indicate nearing that goal, and establish your starting point. Then you can go forth and test the waters, armed with the tools you need to measure your efforts. Let’s take a closer look at this process through a marketing lens.  Define your goal  Before you spend any time or money on any marketing tactic, it makes a lot of sense to look at  why  you’re choosing to do it. For example, you might be doing a social media campaign in order to increase awareness of your brand and to engage with customers. This simple statement not only defines your goals, to increase brand awareness and customer engagement, but it ties the tactic to the desired results. This kind of basic goal setting should be done first.    Choose your key performance indicators  Key performance indicators (KPIs) are measurable variables that offer you insight about how well your strategy or tactic is performing. This concept is simple but it can be tricky to choose the right KPIs.   Try to choose two to three different measures of success, indicators that relate directly to your business goals and provide insight into how your efforts are working. The best KPIs can show a change in performance; this will give you insight on how to proceed.  Here are some commonly tracked performance indicators:   Awareness   How well do your potential customers know your brand? How much is your brand associated with your product or service offerings? These are variables that relate to awareness, and can be tracked by measuring reach, mentions, and search data.    Interest   How interested are potential customers in your offerings? Interest can be measured by looking at the number of inquiries into your product: click-through rates on tactics like online advertising and email marketing, the growth of your database through name collection from opt-ins or newsletter subscriptions, and your conversion rate from visitor to lead.    Leads  Having and generating leads is crucial to sustaining your business. For 99% of our Hop Skip clients, lead generation is their top priority so tracking leads is a must. Impressions, or the number of times your message was displayed, and reach, the number of people it was displayed to, are preliminary ways to track lead generation. The click-through rate (CTR) refers to the number of people who click a link in the message divided by the number of times the message was shown, and it gives you information on the quality of the tactic. Finally, the conversion rate—the number of conversions divided by the number of clicks—can tell you how many people took action based on your marketing.   The idea is to identify a few appropriate KPIs to help you understand the effectiveness of your marketing, but in order to make a comparison you will need a point of reference. This is where benchmarking comes in.  Benchmarking  A benchmark is a standard against which your new data can be assessed. Having a click-through rate of 12% is mostly meaningless, but recording a click-through rate of 12% when it was previously 4% tells you a lot about how effective your marketing is. Record benchmarks for each of your KPIs at the start, before you begin tracking your progress. It’s fairly typical for a small- or mid-sized company to have a website but no Google Analytics account. This account is free, and it’s a great way to source your benchmarks.   Now that you’ve got a sense of the steps to take, let’s look at how this works in real life.   A client we've been working with at Hop Skip used to spend 90% of their marketing dollars on radio ads. We moved 50% of that money into Google Ads, which we can track down to the sale, and integrated a "How did you hear about us?" question into the sales intake sheet. This enabled us to determine the ROI of radio ads and compare them with another top-of-funnel tactic: pay-per-click ads. As it turned out, radio had good return for them, but only in one of three cities where they operate. Google Ads performed better in terms of ROI across the board. This gave us valuable knowledge about what works and doesn’t going forward with their marketing.   If you’re going to market effectively, you need rigour, testing, and tracking. Determining your KPIs and benchmarks at the outset takes the guesswork out of the process and helps you get the best results.

How to tell if your marketing is really working

Marketing can be complicated and costly if you don’t know what you should be doing. Fortunately, there are steps you can take that will give you a clear picture of what’s working and what’s not. Measuring the effectiveness of your marketing efforts through strategy, KPIs, and benchmarks will allow you to guide your marketing success moving forward.