We specialise in helping brick and mortar New Zealand businesses effectively market their services online. (Here are a few customer case studies.) This is one of the many articles we have written on the subject area. Complete a quote request today if you would like to know how we can help your service company achieve more online.
The Power of Increasing Your Maximum Cost per Lead
How much will you pay for an average quality lead? Seems like a rather innocuous detail, doesn’t it? Especially when you compare it with all the rest of the parts of the online marketing puzzle we all have to manage. However, I believe that this rather small figure is one of those relatively hidden metrics of website marketing strategy that, on first glance, looks quite minor but on further reflection really does have a major part to play in showing the true strength or relative weakness of your sales process.
Nevertheless, when I ask people new to Permission what they will pay for a lead, in nearly all cases I receive a rather blank stare. Very few have given it any thought before, let alone calculated what it could be for their business. Now for whatever reason, this month has been a month where I’ve posed this question more often than most. And as per normal, I’ve received a batch of silent responses in return. It’s made for some interesting sales presentations.
Prolonged lengths of silence are not usually the best things to occur during your first meeting with a prospect. Usually these are times for much chatter and many questions. But not much silence. Nevertheless, I’m not put off by the space this question provides, so I power on and dig into what the value “could be” if the prospect isn’t too sure.
Sometimes I rephrase the question.
“So, Mrs Prospect. If you were able to give me a certain amount of money every time I delivered to your front door a prospect of OK quality, what amount would you be willing to part with?”
“Well it depends.”
This is an answer that means we are underway. Now, we need to qualify the exact product/service this “Permission delivered” prospect is interested in purchasing and the likelihood of them purchasing it after hearing my prospect’s sales message.
This usually leads us into a discussion of future figures and stats that may have us saying, for example, that a quarter of all the leads they present to go on to buy something. And perhaps the average amount of profit per sale that they are willing to allocate to marketing may be $160. Therefore, without allowing for any repeat purchases, a feasible cost per lead could be around $40. So, if they happened to decide to spend $1000 per month with Permission then they should expect in return 25 new sales to make the transaction work. And likewise, a new customer count above this means that things are looking very good.
So now we have a marketing success benchmark of $40. This means that for any marketing the company produces – so long as they can track its effectiveness – if it produces leads of OK quality at sub $40 value then all is OK.
Thankfully, when it comes to tracking the effectiveness of marketing, the online marketing space does a grand job. Google Analytics in particular really simplifies the task of matching website marketing expense to sales revenue. It’s all there waiting to be found in easy-to-digest reports.
Using your new-found cost-per-lead value as a benchmark for marketing success is just one simple way to make the work required to produce the figure worthwhile. Nevertheless, the real power of this metric is when you use it to reveal the health of your sales process. This comes with the startling realization that the healthier your process is the more you will be willing to pay per lead.
Yep, moving your allowable cost per lead upwards – that’s where the real possibilities are. Increase it, say, to a place where you are able to pay twice or even three times more than your competitors can afford per lead and still make money. That’s where the marketing magic really starts to arrive.
And before you yell out “buying business is not for me, Mr Price” – be aware that I’m not condoning any short-term marketing strategies that some foolishly see as being a necessary evil to capture market share. Nope, this is about being able to operate a sales conversion process that is so much more efficient than everyone else in your market that it remains sustainable to you but economic suicide for your competitors to follow.
Now some may read this and say, “Chris, what are you talking about? Surely if you are converting leads at a three-fold higher rate than your market then you can keep spending the SAME AMOUNT as your competitors and just bank the extra sales revenue.” Or those with a particular aversion to spending any marketing budget may be considering how this strategy could even enable them to REDUCE their marketing spend by a third and still end up with the same number of leads.
So why not consider taking either of these choices instead of INCREASING your marketing spend?
Well, my answer is that all three are “valid” options for you to consider. There you go – good old-fashioned, no commitment “consultant speak”. However the “best” choice really depends on your aspirations for the future.
Because really, the first two choices are about increasing business efficiency, whilst the third option – of spending more – is all about maximizing growth opportunities. You take your pick; however, remember the first customer conference call I presented this year? The one about the expected growth – or lack of it – for the NZ economy in 2011? Now, I’m no economist, so I cribbed from the few who are and their prediction was particularly uninspiring (and that was before the events on February 22nd in Christchurch). So don’t expect much latent growth from the economy around you – so best you go and find your own.
Let’s say you can move your affordable cost per lead from $40 to $125 – not an insignificant jump but, nevertheless, not beyond the realms of possibility based on our experience. This change uncovers a few new opportunities to consider. For instance, the use of a wider range of media types that may have been out of your reach before. Maybe radio and even TV could be an option at these values. Competitors that remain at a sub $50 cost per lead just couldn’t afford to follow you into these media types without burning too much cash in the process.
And on a subject closer to our digital space, your bidding strategy with Google AdWords could be turned on its head with a change like this. Understand that your bid price is not everything that ensures your placement – our last conference call on Google AdWords shared that Google formula for us all – but still, if you push the cost per click upwards you will stretch not only yours but your competitors budgets too.
And finally, for those involved in face-to-face selling, let’s not forget about the skill set of the sales staff you can employ now. Their salaries, and the training/resources you provide them all can head upwards as you are able to “spend more” to capture each sale.
All three options are worth considering, but how do you actually go about nudging upwards your affordable cost per lead? Here are three quite generic strategies that may help (of course there’s a longer list of specific online marketing methods within our Grow Conversions – Website Optimisation Service Module).
Strategy #1– Optimise your sales process
Yes, a basic one I know, but the facts are that if you increase your sales conversion rates from 25% to 50% then you are able to effectively double your marketing spend and achieve four times more sales.
Selling is really just another business process that needs managing. Just like manufacturing, accounts and marketing. Each of these four processes contain a series of carefully crafted steps that need optimizing by those that care. But how often does this occur?
All my work experience has been in sales. I’ve sold valves, pumps, scientific equipment, printing and even outsource mail-handing services. Some deals were worth $150, others $25,000, and a few a cool $1.5 million in annual services. But in none of them was I ever sat down and shown exactly the right way to sell what I was selling.
I did have some early training in my first job with David Forman Sales Training (remember them?). But other than that, I was left to my own devices. Now, don’t get me wrong, there was some activity and result tracking throughout this. Some companies were more detailed in this regard than others. However, none of them sat me and the rest of the selling team down together and collectively pulled apart the complete process to find the best way to sell their products.
And this is not a unique situation. Based on my experiences since then, I would suggest that 90% of businesses do not apply a process to their sales methods. So the odds are in your favour that your competitors will be in this 90% group. It doesn’t mean you should be.
Strategy #2– Improve your opportunity for repeat business
If you run a business with very little chance for repeat customer business then good luck – I hope your marketing is up to standard. It will need to be. Look at the industries with a low propensity for repeat sales (investment banking, high-end computer software) and within the market leaders you should see some of the best marketers working away. They are tasked with bringing in a steady supply of new leads every day, every month – all at the right cost to keep the wheels turning.
In comparison, those businesses with a strong chance of repeat sales can usually survive with less than exceptional marketing efforts. Yes, they still need a supply of leads but their repeat sales keep them going when their new prospect work drops off the boil.
For instance, a friend of mine has started a consulting business that is definitely in the low repeat group. His customers will use him once every 7 years. That’s a long time between invoices.
What he provides has some strong margins in it, but not sizable enough to ensure he can survive this length of time between drinks. And it gets worse. Unfortunately, he freely admits to not having any marketing skills whatsoever. He’s an expert technician but promoting and marketing are not part of that mix. Plus, did I mention he began the business undercapitalized so any promotion needs to be done on the cheap?
At the other end of the repeat business spectrum, another friend, whose business supplies a service in a completely different market, has an almost certain level of repeat purchase with his customers. Probably the best I have ever seen, barring electricity retailers. Once his customers buy from him they just keep on going. Marketing for him is an expense account at a local café for him to chat away with existing customers as they brief him on the next job.
Strategy #3 – Increase the expected margin from each new customer
I’m not going to give up on my friend for whom I have predicted a long period of struggle. Nope, I’m going to keep on pestering him with advice to ensure he makes a go of things. And at the top of my list of pestering points is the challenge for him to sell other things to his customers to help him bridge his 7-year gap.
It’s a simple strategy and one that Amazon recently used when they purchased Diapers.com and Soap.com for a reasonably massive USD 540 million. I would safely say that both soap and nappies are consumed with a higher purchase frequency than books and electronics equipment so all this must be good news for Amazon. And thankfully, my friend doesn’t need to invest the same amount as Mr Bezos but, nevertheless, adding a few higher frequency purchase items to his own basket of goods can only be a good thing.
So there you have it. A few reasons why the act of pushing upwards your affordable cost-per-lead value is a good thing, and a smattering of options to help you achieve this. If this is all new to you then I suggest you start with calculating (with a reasonable level of accuracy) your maximum affordable cost per lead. Then you can use this to gauge the effectiveness of your online marketing followed by some tactics to nudge the value upwards to further reap the marketing benefits this will bring.
Contact us today to learn more about how we can help your service business market online