Using KPIs to predict your success with digital marketing eliminates guesswork when planning your marketing budget.
An "AOV-based" company is a company that sells lower volume but boasts higher ticket pricing per item as apposed to an "LTV-based" company that depends on customer loyalty and recurring sales over time.
LTV-based companies depend on “lifetime value” – the worth of a customer over time, factoring in recurring purchases or subscriptions and having to maintain low churn rates, keeping customers as long as they can. AOV-based companies don’t always depend on recurring sales because their initial sales amount or “order value” is typically very high.
AOV-based companies get great wins fast but, again, can’t rely on recurring revenue so they are always having to generate new leads.
AOV-based companies often have very high CPA and low margins but they can afford it: The cost per acquisition often is trivial compared to the revenue from one good sale.
Lastly, AOV-based companies must manage capacity since fulfilling that "one good sale" often takes a lot of hands on deck (HR / subs), not to mention scheduling, and good PM staff.
(For a deeper dive on KPIs, please check out my post on forecasting success using KPIs.
Why Go Digital in the First Place?
You may be tempted to use direct mail or hire some students to run around your city knocking on doors and handing out postcards.
But ask yourself this: How many door knockers or would it take to reach even a small percentage of every person in your market, every day and only spend a few dollars per day?
For example: In our local market of Wake County, NC, there are 260,000 owner-occupied households. How many door knockers would you need to knock on just 10% of every door, multiple times per month (without annoying people)? Facebook™ all by itself will do that for you.
What about direct mail? Sure, it works. But to reach the same 10% audience just once, you would need to send 26,000 mailings, at a cost of $4,862 per mailing [Source: USPS.com]. And that's just the postage, not including the cost of the mailers, design, or printing.
One CEO from a big brand company recently told me, "Traditional marketing is not sustainable for us; we're losing market share every year and must recover that using digital marketing." [citation confidential]
With all traditional channels, you're just blitzing to everyone. With digital marketing and interested-based targeting, you can vastly nail down your targeting (and manage your costs).
Regarding just one digital channel, Facebook™ marketing, according to Brandwatch.com:
- 51% of adults use FB several times a day.
- There are 1.49 billion daily active users.
- Users spend an average of 20 minute per day on the site. In that length of time, your ad will be presented to them.
- There are over 60 million active business pages.
- OVER 2 BILLION PEOPLE CAN BE REACHED USING FACEBOOK™ ALONE
(Facebook™ is) "the first social media platform able to do both sales AND marketing for your business." [source: Gary Vaynerchuk]
Sample Case Studies:
We have a lot of experience in this industry. Many companies in the construction industry depend on referral leads. Referral leads offer, by far, the most bang for the buck. All you have to do is close them.
But a construction company who wants to grow, or who wants to fill capacity early in the season or off season cannot just depend on referral leads.
Let’s run some numbers for this industry:
- Since construction often is a low margin industry, we’ll enter 20% for margin.
- We’re after only 5 new customers per month for this example.
- And we’re doing kitchen / bath renovations at $50k a pop.
- Finally, we’re sticking in $5k of ad spend to be sure we win the PPC auction.
- We've set CPA at about $1,000 which is a reasonable ballpark amount.
What the Spreadsheet Shows:
You can see that high-ticket, low margin industries really can cash in. The ROI is absurd, often hitting an unbelievable 50X in many cases.
And even with low margins the ROI on profit still is outstanding.
Lastly, time before profit also is outstanding. Because of the high ticket pricing, one sale can pay for several months of marketing expenses.
But there are some caveats to all this glory, as too high an ROI could cause you to leave money on the table or attract your competitors to promote more aggressively.
2) Specialty Contractors
Let's look at marketing ROI for the broad sector that includes construction contractors, roofers, remodelers, HVAC installers, windows and blinds installers, pet fence installers, and many other mid-ticket verticals.
Let's look at these numbers:
- Pricing varies, but let's nail down $2,000 per sale as our AOV.
- Since ticket pricing is lower, volume will be higher, and margins should be higher as well. So let's go for about 15-20 new sales per month.
- We're keeping the same ad spend to hit CPCs and auction levels, but CPA should be lower to coincide with the lower ticket pricing.
- Finally, some of these industries have annual recurring revenue: tune-ups, maintenance, service contracts, etc., so we're adding $500 per year recurring revenue.
What the Spreadsheet Shows:
While not so aloof as a major construction company or heavy equipment manufacturer, there still is a lot of money to be made.
Proper optimization, good hooks, and watching the data can lower CPA, making advertising in this sector very, very profitable.
Because ROI is more manageable, competitors should be less likely to suddenly grab market-share.
Greater gains will occur over time by using multiple channels:
- Facebook™ ads.
- Instagram ads.
- Google Adwords.
- Inbound marketing.
- Website—making sure your website has good SEO, good page formatting and content, is fully mobile-ready, and has viable CRO (conversion paths so visitors are promoted to buy).
When business is good you may be tempted to wait. But you may find yourself waiting until it's too late, business takes a dive, or your competition suddenly jumps in ahead of you.
We're not opposed to traditional marketing, T.V., radio, trade shows, direct mail, etc., but these are all ROI-stressed channels.
You still can use traditional, and there are some creative ways to do so, like pair a PPC campaign with direct mail and additionally looping in a call center.
Again, marketing is very simple: It's sharing the right message, to the right people, at the right time—and finding the best ways to do that.