Advertising is, quite often, the most expensive component of a company’s marketing budget. It for this reason that it essential to track the results of your advertising campaigns. As an Internet marketing company, we recommend tracking a few key metrics. They are the cost per lead (CPL), cost per presentation (CPP), and cost per sale (CPS). And if you can, consider tracking the cost per click (CPC) and cost per booked appointment (CPBA).
The CPC, CPL and CPBA are great leading indicators of a successful and cost-effective marketing campaign. The CPP and CPS are strong lagging indicators. So, why do you want to track both leading and lagging indicators? Because the leading indicators tell you how likely you are to succeed from a marketing return on investment perspective, while the lagging indicators illustrate if you can actually be profitable.
This leads to the next question. How do you understand what you can afford to spend from a CPS perspective? A great way to figure this out is by understanding your lifetime revenue per client. For example, if you know that your lifetime revenue per client is $15,000, you may determine that you can spend up to $5000 per sale, based on your profit margin.
By understanding what you can spend on a CPS basis, you can then work your numbers backwards to determine your CPP, CPBA, CPL, and CPC. To calculate these numbers, all you have to do is determine your conversion rates from clicks to leads, from leads to booked appointments, from booked appointments to presentations, and from presentations to sales.
By understanding your lifetime revenue, use this information to understand your revenue per step as well, just like we did on the cost side of the equation, as outlined above. For example, if you understand that your lifetime revenue per click is $6.00, you can determine what you are willing to pay on a CPC basis.
Once you have a clear understanding of these numbers for your business, if you’re not already doing so, track each one of your advertising campaigns separately so that you can compare your advertising channels. For example, if you are spending $5000.00 on a pay per click (PPC) campaign in Google, track the leads that are generated as well as the other costs per step, such as the CPS. And do the same for the rest of your lead generation channels.
With this information, you can compare each of your advertising channels and vendors against each other and determine which of your advertising campaigns you want to increase or decrease your spends on. Ideally, you want to establish a lead generation campaign where 90% of your spend is stable and 10% is allocated to testing new vendors and channels. This ensures that you have a predictable revenue model in place.
If you have any questions about how to set up these metrics, please feel free to comment.