As a customer advocate at Zen Planner, I talk with hundreds of business owners each week. One hurdle many of them find difficult to get over is how much money to put towards marketing efforts. Most of them recognize the importance marketing plays in their business, they just don’t have the marketing experience and know-how to market their business effectively.
One area owners find particularly troublesome is budgeting for advertising. A lot of them seem to pick an arbitrary amount they put towards marketing efforts. They know it’s not the most effective way to budget, but it’s all they know.
The truth is, you don’t have to be a marketing genius to be successful in budgeting for your advertising. Which is why I’ve come up with four key performance indicators (KPI’s) to help you in making marketing budget decisions.
1). Ask How People Have Heard About You.
This is a simple question and provides invaluable insight into what advertising channels are working for you. But more than anecdotal evidence is needed. Most member management systems give you the ability to track the source of this new customer and provide tools to aggregate and report based on this data. You can supplement that data by asking members on your sign-up form how they heard about your business. Tracking this data point now will provide better feedback for future campaigns.
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2). Understand Your Conversion Rate
From a marketing perspective knowing your conversion rates for your marketing channels is essential. The calculation itself is simple enough if you have the right inputs. You need to know how many people viewed your ad or received a promotion, and how many of them eventually turned into members. Once you have those numbers handy, you just divide the number of memberships by the number of people who viewed your ad and multiply by 100 and you have your conversion rate.
( # of memberships sold from a promotion / # of promotion views ) x 100 = Conversion Rate
Ex: ( 20 memberships sold / 1000 views ) x 100 = 2% Conversion Rate
Once you have these rates in hand you can gauge the effectiveness of your marketing campaigns relative to their costs and see where you want to allocate your advertising budget.
3). Understand Your Average Member’s Lifetime Value
If you spend $100 to bring in 1 customer, was it worth it? If you don’t know, take the following steps to put yourself in a position to answer this question with confidence. First, find out the average value a member is worth to you per month. Second, calculate how long your members stay with you on average. For example, if the average member pays you $100 per month and stay with you for 24 months, the average member’s lifetime value is $2,400.
$100 per month x 24 months = $2400 Lifetime Value
4). Understand your Profit Margin per User.
This is a really good way to gauge the health of your business. From a marketing perspective, if you can find your most cost effective channels you can reduce expenses while increasing memberships, that is the dream! All you have to figure out is how much money do you bring into the business and subtract that by how many expenses you have. Divide this total by the amount of members you have to understand how much profit each member is bringing in.
( Total Revenue – Total Expenses ) / Total Member Count = Profit per Member
Ex: ( $500,000 – $350,000) / 400 = $375 Profit per Member
With these four KPIs on your radar now – the uncertainty around creating a budget dissolves and your ROI on advertising campaigns becomes more predictable.
Have questions or want more clarity on one of these metrics? Comment below.
When you’re looking to build your marketing and advertising strategy, it’s essential you have a good plan in place. Checkout our Free Marketing Calendar Template to help build out your strategy.