Imagine this – you’re sitting at your desk minding your own business, when the CEO comes waltzing by and asks you what seems to be an innocent question: “How do we know if our marketing automation campaign is working?”
That sounds simple enough. After all, if people are clicking through on the links in the campaign, it’s working, right?
But then the CEO expands on the question and says this: “I want to know that if we spend a dollar (or euro, or whatever) on marketing, that we generate three, four, or five on the back end.”
Would you know how to answer that question? In other words, would you be able to tell your CEO that your marketing automation campaign is generating a positive return on investment (ROI)?
If the answer is no, then you’re not alone. After all, according to The CMO Survey from Duke University, 63% of the CMOs surveyed feel they cannot quantitatively prove the short-term impact of their marketing spend.
The good news is that we’re here to change all of that. By understanding some basic math and by tracking a few metrics, you can start to calculate the ROI of your marketing automation campaigns.
Ready to put your thinking cap on? If so, let’s get started.
Calculate your customer lifetime value
The starting point for anyone who wants to calculate the ROI of a marketing automation campaign is to understand the concept of customer lifetime value (CLV).
In its most basic form, CLV is the amount of money you make from the average customer during the time they’re a customer. For example, let’s say you work for a software as a service (SaaS) company. If you charge $20 per month for your software, and the average customer stays with your company for 24 months, then your customer lifetime value is $20/month × 24 months = $480.
In a similar fashion, if you have a lawn care service and your average customer spends $100 per month with your service and typically stays 3 years, then your calculation is $100/month × 36 months = $3,600 CLV.
It’s worth noting that that is a very basic formula for CLV. If you’re good with math (and a spreadsheet rock star), you can do some much more advanced calculations, but for our purposes, we’ll stick with the formula we used here.
CLV for businesses that don’t offer monthly services
It’s pretty easy to calculate your CLV if your business is a monthly service, but what if you don’t have a business that sells monthly services? For example, what if you install swimming pools – no homeowner wants more than one pool, so your business is “one and done.” If that’s the case for your business, then CLV is even simpler – it’s just the revenue you generate from selling the product once. In the case of a swimming pool installer, the CLV would equal the revenue generated from the average pool installation.
Drive prospects to your website
Okay, now that we’ve calculated your customer lifetime value, it’s time to focus on another task, which is to drive prospects to your website so that they can sign up for your newsletter and (eventually) become customers.
By getting prospects to sign up for your newsletter, you’ve dropped them into the top of your sales funnel. From there, you’ll move them from the top, to the middle, and then to the bottom of the sales funnel where they convert to customers.
Most business people are already familiar with search engine optimization (SEO), which is a technique that can help you improve your organic rankings on Google, Bing, and other search engines. The basic idea behind SEO is to develop content that attracts prospects and customers to your website. If the prospects and customers spend a good amount of time on your website, come back regularly, share your content on social media, and do a whole slew of other things, then your organic search rankings will improve.
The challenge with SEO is that all of your competitors are doing the same thing, so you have to find ways to drive prospects to your website that go above and beyond organic search.
One of the easiest ways to do that is to use paid ads to drive traffic to your site. The combination of free organic search along with some paid traffic is a powerful combination that can set you apart from your competition.
The starting point for a paid digital campaign might be to run a campaign with Google and/or Bing. Both of those platforms are very easy to set up and can be used to drive traffic to your website.
The best part about paid search is that you only pay for the ad when someone clicks through and visits your website. That makes it a relatively safe marketing investment for most businesses.
Another way to drive traffic to your website is by using paid social media ads. Facebook, Instagram, Twitter, and Snapchat all have user-friendly platforms that can help you target potential customers and then entice them to click through to your website.
As an example, let’s say you want to use Facebook to target prospects that live and work within a 25-mile radius of your business. Facebook (and other social media platforms) make that kind of geo-locational advertising very easy and straightforward. Just a few clicks of your mouse and you’ll be well on your way.
That’s not the only kind of targeting you can do. For example, let’s say that you only want to target women who are mothers between the ages of 25 and 34 who like to play tennis. No problem. Or, you might want to target business executives who work in your part of the country and who read marketing blogs. Again, no problem.
In the end, running a paid social media campaign is a great way to add an extra boost to what you’re already doing with your organic SEO efforts.
Optimize your landing pages
If you’re using paid search and/or paid social media ads to drive traffic to your website, it’s important to set up a customized landing page that greets them when they click through. There are some people who take the easy road and simply use ads to drive people to their home page, but that’s not ideal. A more effective approach is to drive people to a landing page that has been synced up with the same messaging that you have on your ads.
As an example, if your ads say “Buy Green Widgets Here!” then people are going to want to see green widgets when they click through on your ad. If you drive them to your home page that doesn’t talk about green widgets, they’ll get confused and leave.
Some businesses prefer to build a relationship with prospects before they try to convert them to customers. If that’s what you’d like to do, then you can drive people to a landing page where they can sign up for your newsletter first. By doing that, you’re able to gently nurture those prospects down the sales funnel until you’ve eventually converted them into customers.
After you’ve set up your landing page, you’ll want to start testing variables to see which version of the landing page gets the most conversions. For example, if your landing page has a form with a blue “submit” button, you might want to test a red “submit” button to see if that improves your results.
You can test a wide variety of things on your landing page – headlines, copy, graphics, buttons, etc. The key thing is not to test more than one variable at a time, otherwise you won’t know which variable impacted the results you’re monitoring.
Calculate your cost per sale
We’ve covered a lot of ground so far – customer lifetime value, paid search campaigns, paid social media campaigns, SEO, and landing page optimization.
Now we’re ready to introduce a new concept, which is called your cost per sale (CPS). Your CPS is essentially the amount of money it cost you to convert a prospect into a customer. Put more simply, it’s how much money you spend to get a customer.
A good starting point is that your cost per sale should be about 10% of your customer lifetime value. Remember the example we used previously of the software company that had a CLV of $480? That would mean that the cost per sale should be about $48. In other words, for every $48 the software company spends in marketing (or marketing automation), they should get one customer.
Since the average customer will spend $480 with the software company over time, then spending $48 to make the $480 is a very good model indeed.
Sounds pretty simple, right? The truth is that it’s harder to do than you might think. Let’s say that your website gets 20,000 visits per month (or 240,000 visitors per year) via your organic traffic and your paid advertising traffic. From that traffic, you might get 500 new sign-ups to your newsletter every month. That’s 6,000 new newsletter subscribers per year. But then you have to ask how many of those become actual customers. If you’re like many companies, a good rule of thumb is that about 1% of your newsletter subscribers in any given year might become customers.
So, out of 6,000 newsletter subscribers, you would get 60 new customers. Those 60 customers would generate $28,800 over the average time they would spend with your company.
Since we’ve thrown a lot of numbers at you, let’s do a quick breakdown of the math we’ve covered so far:
|Number of website visitors per year (organic and paid)||240,000|
|Number of new newsletter subscribers per year||6,000|
|Number of newsletter subscribers who become customers per year||60|
|Revenue generated by those subscribers over average lifetime of the customer||$28,800|
|Budget allocated to acquire those 60 customers based on 10% of CLV||$2,880|
|Cost per sale ($2,880/60 = $48)||$48|
Based on the numbers in the chart on this page, you would take $2,880 divided by 60 to arrive at a budget of $48 needed to acquire a customer.
That sounds like an ample budget, but let’s remember there are costs associated with that figure. For starters, let’s imagine that your total number of newsletter subscribers is 20,000. A marketing automation platform that supports your 20,000 subscribers might cost you about $1,750 per year.
You’re also using paid advertising to drive traffic to your site, which might run $1000 per year. Now you’re up to $2,750, which is very close to what you’ve budgeted. If your web design and other marketing needs are handled in-house, you’re fine. But if you need to hire outside resources to create ads, landing pages, and other marketing items, then you could go over budget very quickly.
In the end, you should think of your marketing automation campaign as an investment in your business. Based on the model above, if you spend $1 on marketing automation (and related costs), then you stand to generate $10 of revenue on the back end. That’s great news, but remember, things are always simpler on paper than they are in real life so be sure to track your results carefully and make adjustments along the way. By doing so, you’ll ensure that you’re getting everything you can from your marketing automation campaign.
Action steps for you
It’s one thing to read an ebook about how to calculate the ROI of your marketing automation campaign, and it’s another thing to actually put it into action. With that in mind, we’d like to encourage you to embrace customer lifetime value, conversion rates, cost per sale, and other concepts mentioned above and put them to work. By doing so, you’ll be able to answer your CEO’s question next time you’re asked, “What’s the ROI of our marketing automation program?”
About the Author
Today, over 350,000 customers in 182 countries trust the GetResponse email and marketing automation platform. With over 20 years of experience, we deliver excellent digital marketing solutions, available in 22 different languages. Our company operates globally with offices in Poland, Canada, Malaysia, and Russia. We have over 300 passionate professionals on board. Together we create inspiring technologies that empower entrepreneurs and help them grow their businesses.
GetResponse offers a complete suite of simple yet powerful features, scaled and customized for small and large companies alike. Our tools are designed for organizations that are focused on implementing high impact marketing campaigns that drive effectiveness and overall ROI.
The GetResponse online campaign management platform helps to design, implement, and track digital marketing activities. Companies can do that using marketing automation, autoresponders, webinars, landing pages, advanced analytics, and over 50 other easy yet powerful features.
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