Feed Your Winners; Starve Your Losers
Content was originally published on Inc.com on January 27, 2016.
Cash flow is always a sensitive subject with business owners.
Here is one of my favorite ways to immediately increase your sales with no additional investment of time or money.
How? By getting very strategic and upgrading where you invest your marketing dollars to get maximum return on investment of both time and money.
This means setting up clear tracking on any marketing tactic you employ, be it paid search, to SEO, to social media, to content marketing, to radio ads, display ads, trade shows, and dozens more.
Obviously depending on your business, some are going to directly apply and be perfect for your business, and others aren’t. Now, here’s the key — what works best is not a matter of opinion, but rather a matter of being able to objectively measure and track your Return on Investment (or ROI) on those efforts.
You must be able to track performance of each and every ad and each and every dollar you spend on marketing.
Why? Because one of the fastest ways to boost cash flow is to immediately redirect money from your bottom marketing performers to your top 10-20 percent performers. Same marketing spend of time and money, but you’ll get a fast and predictable boost to your sales.
Here’s an example. One of the businesses I owned generated a lot of its leads from strategic relationships with professional referrers. We spent tens of thousands of dollars and hundreds of hours cultivating these relationships knowing how important they were to our growth.
Now here’s the thing, when we started to granularly track our results by each strategic partner, and tracked not just leads generated but actual revenue generated we noticed a very interesting thing – just 10% of our strategic partners accounted for the revenue generated of the other 90% combined!
Think about that for a moment. We knew that these strategic relationships made a real impact, we could see the sales, but when we dove deeper into our analysis we realized that we could narrow our time, attention, and money down to these 10% strategic partners, and in so doing get better results.
I call this strategic principle: “Feed your winners; and starve your losers.”
But to do that, you’ve got to know what your winners and what your losers are. And this requires you track your key marketing tactics.
That means you’ve got to start now to track your key lead generation tactics.
I’d suggest that at a minimum you track the following:
Marketing Metric #1: Your “Cost per Lead.”
Measure the total cost of a particular marketing tactic (e.g., pay-per-click advertising, direct mail, trade show booth, etc.) and divide that by the total number of leads that tactic generated in a specific period of time.
If you spent $10,000 on your trade show booth, travel, and staff cost and generated one hundred new leads, your cost per lead is $100 per lead ($10,000/100 leads).
Knowing your cost per lead helps you compare which lead tactics are most cost efficient, and gives you feedback so you can refine a specific lead-generation tactic to perform better.
Plus, any big change in your cost per lead can be a critical leading indicator, good or bad, that you must pay attention to in your business.
Marketing Metric #2: Your “Cost per Sale.”
This measure is simply the total cost of a particular marketing tactic divided by the total number of sales you made from that tactic. Continuing on with our trade show example, imagine that of those one hundred leads you got from the trade show, you closed ten sales. That means your cost per sale is $1,000 per sale ($10,000/10 sales).
Knowing your cost per sale helps you get a sense which marketing tactics yield leads that are higher propensity buyers relative to your cost to acquire these leads.
Marketing Metric #3: Your “Return on Investment per $1 Spent on Lead Cost.”
This final number is a powerful way to equalize various marketing tactics so you can see which one has the greatest return on investment. You calculate it by dividing total sales you made with this tactic by the total amount you spent on that marketing tactic. For example, with the trade show example, if your ten sales each purchased $10,000 from your company, that means that your $10,000 investment in the trade show yielded $100,000 in gross sales (10 sales x $10,000 per sale). In this case, your dollars sold per $1 spent on lead cost would be $10 ($100,000 in total sales/$10,000 in lead cost for those sales).
In essence this means you had a gross return of 10x (1,000 percent) on the money you spent on the trade show. Depending on your margins, and how much future business these ten customers will yield, and a few other factors, you’ll know if that return on your marketing dollars for the trade show was worthwhile or not.
Bottom Line: You must track your lead generation activities to know what your winners and losers are, so that you can take the energy—time, money, and dollars – you’re wasting on your losers, and immediately redeploy them to feed your winners. The impact of doing this will be huge. And isn’t that what you want? BIGGER and better results from less time and money invested? Of course, so get to work.
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