At the end of the first article on ‘How To Calculate Your Marketing Return on Investment’, I said I was going to reveal the most accurate figure for calculating marketing return on investment.
Before getting into that, let me tell you a quick story.
Few months ago, I met a dentist who wanted me to help him grow his practice.
In the spirit of total transparency and to prevent sticker shock upstream, I decided to show him the cost per click for Google Adwords for dental keywords.
The cost per click of dental keywords ranges from $5.00 to as high as $85.00 per click.
What this means is, if we placed an ad on Google, every time someone clicks on the ad, it would cost him $85.00.
Facebook cost per click was between $1.00 to $5.00.
Naturally, his preference was for us to use Facebook.
Two Important Marketing Lessons
There are two very important lessons I would like you to take away from this article.
If you took those two lessons, it will be worth your time spent reading it.
The first lesson is this…
The average cost of cosmetic dentistry is £4000 ($6500).
Let’s say hypothetically, our dentist needed 20 people to go through his marketing funnel in order to sell a single case of cosmetic dentistry.
For simplicity sake, let’s say it cost $100.00 per click.
It will cost him $2000 up front to get 20 people through his funnel.
Remember, the average cost of cosmetic dentistry is £4000 ($6500).
Therefore, if my guy subtracted the $2000 he paid to acquire the patient, he is still left with $4500.
Let’s say in the worst case scenario, he spends $4000 to acquire that single patient, he is still left with $2500.
If he used $1500 for production costs, it still leaves him with $1000 to reinvest in future marketing.
But my guy said to me it’s too expensive.
That question again, expensive compared to what?
The second lesson to take from this story, is the point I made that my guy’s preference was for us to use Facebook because the cost per click was cheaper than Adwords.
However, people don’t go on Facebook to buy, they go there to socialise.
This means that it will require a lots of nurturing to move a Facebook prospect, from a prospect to a patient.
This is in contrast to the individual who clicks on an Adwords ad knowing fully well they are going to be sold something.
So on the surface, Facebook may appear the cheapest of the two.
But when you consider the amount of resources required to turn a Facebook prospect into patient, you come to the conclusion it works out cheaper to advertise on Adwords.
What we learnt from lesson one is, we need to carefully examine our figures.
What might appear expensive on the surface, when examined properly might end up cheaper.
Lesson two taught us that all that glitters is not gold.
The media that might appears cheaper to place ads on might end up being the most expensive.
Figures To Calculate
To get an accurate picture of your marketing return on investment, the following are the variables you need to calculate:
- The amount it costs you to generate a new customer
- The amount a new customer spends with you on their first transaction
- The life time value of a customer
If you are doing online marketing, these are the variables you need to calculate:
- Click Through Rate
- Cost Per Click
- Cost Per Thousand Impressions
- Optin Rate
- Front-End Transaction minus Avg. Acquisition Cost
- The present value of the future cash flows attributed to the customer relationship
- Advertising cost, divided by number of leads generated
- Advertising cost, divided by number of orders generated
- Advertising cost, divided by number of customers acquired
- The average cost to acquire a customer, which is the total acquisition spending divided by the number of new customers acquired
- Earnings per click
- Net profits over the investment needed to generate the profits
- The difference between the amount earned from and the costs associated with the customer relationship during a specified period
- The rate of purchases started but not complete
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In this fiercely competitive business environment, the tiniest of things can make an enormous difference to your sales and profit margin.
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