In Part 1 of this article series, I discussed some outside-of-the-box marketing techniques that I have tried with my HVAC business. They have proven to be successful techniques for my business, but did not come without trial and error.
The bottom line is that, whatever marketing techniques you try, you will only find success if you measure these efforts and determine if they are truly helping your business. This means considering things like customer acquisition cost and customer lifetime contribution margin. Those may sound like intimidating terms, but these numbers can let you know just how much money you’re making, or losing, from certain marketing techniques. They can also help determine what is working and what needs to be adjusted.
When you accurately measure and track the indicators that determine successful performance, it will improve your marketing return on investment (ROI) and can empower further growth and profitability through a repeatable model.
Whether you are using traditional marketing, or some of the non-traditional marketing techniques I outlined in Part 1 of this series, some things to consider when measuring these efforts include:
Be mindful of the 5 “C’s”. The 5 “Cs” are metrics that can provide HVAC business owners a clear vision into the health of an online retail business if they are operating one. They include:
• Company Net Promoter Score: This score tells you how likely customers are to recommend your company. By asking your customers, on a scale of one to 10, how likely they are to recommend your company to friends and family, you can determine who is likely to promote your company and who is likely to detract. You can then use these numbers to calculate your net promoter score (percentage of promoters, minus percentage of detractors). A high company promoter score means the majority of your clients are loyal and willing to say good things about your company. A low one? You have some work to do.
• Customer Acquisition Cost (CAC): Find out how much it costs to acquire your next new customer. You need to be measuring your CAC for each of your methods of advertising so you can find the most cost-effective methods.
• Customer Lifetime Contribution (CLTC): Calculate the net present value (NPV) of the gross profit from your next new customer’s purchases over the life of the relationship. A profitable customer will have a CLTC in excess of its CAC. It’s also worthwhile to track the Average Order Value (AOV) on a monthly basis as a leading indicator of CLTC. You can use these numbers to figure out how much to spend on marketing. As your CLTC grows, so too can your marketing budget, because each new customer is becoming more valuable.
• Conversion Rate: What percentage of the customers that engage with your company actually convert into paying customers? The higher the percentage, the lower your CAC and the more you can spend on customer acquisition.
• Churn: The percentage of customers who are one-time buyers and never come back to purchase again. Ideally, your churn will be low — you want all customers coming back! Lower churn should result in higher CLTC.
Determine your marginal contribution. This measurement allows you to understand the gap between the gross margin you derive from your next new customer (CLTC) and the cost to acquire your next new customer (CAC). Both metrics, as well as the gap between them, should be tracked over time to help you see the big picture.
Keep in mind which types of customers are engaging with your business multiple times and bringing you profitable business and which types of services bring the highest gross margins. When you ensure the CLTC is higher than the CAC, you can confidently invest more marketing dollars to gain even more new customers, knowing that each incremental new customer is bringing you more gross margin dollars than the advertising dollars you are spending to acquire that new customer.
Understand your funnel. When you think about your marketing efforts, visualize a funnel with a wide inlet at the top and a narrow outlet at the bottom. Your goal as a marketer is to fill the funnel with targeted prospective customers and work hard to increase the percentage of prospects that come out the other end of the funnel as paying customers.
Think about each touchpoint with the prospect, from their initial call or visit to your website to the final transaction. Reducing friction at each point in the process and optimizing your business to minimize the number of prospects that abandon the funnel increases your conversion rate. When you increase your conversion rate, you can reduce your CAC and invest more money on marketing to grow even more.
Successful marketing is not based on luck. If you don’t measure your marketing efforts, you’re asking for trouble. Companies that track metrics like customer acquisition cost and lifetime value, and make smart decisions based on the data, are the ones that build scalable, profitable, sustainable models. Create a plan based on these marketing metrics and set yourself up for success.
Publication date: 1/5/2015