Let's start this post with two tough questions:
There’s a reason I started with these questions. I want to make sure you realize just how much of an impact your marketing has on your company’s success. Without marketing, nothing else in your business runs, or happens. There is no exception to this rule.
Of course, you need all three parts (marketing, sales, and production) to have a fully functioning business... but it all starts with your marketing. Without marketing, no one will contact your company to buy your service. Without sales, your production team will spend a lot of time sweeping up the shop and washing the trucks, not working on jobs that bring in revenue.
So, we know that marketing plays a crucial role in your company’s success. Now we need to develop a plan that will get us to our revenue goals, and a way to track the results to ensure they are meeting our expectations. This article will help you understand the Key Performance Indicators that will help you accomplish this.
Understanding What KPI’s Are
KPI is an abbreviation for “Key Performance Indicator.” A KPI is an important benchmark in the various departments of your business, which quickly tells you if things in that department are “working.” It tells you if you’re on course to hit your goals or if adjustments need to be made in that department. For example, the average cost of a lead is a KPI in your marketing department.
Below, we'll review each of the 4 main KPI's you need to track in your marketing "machine", why it's important, and I'll give you a great example of the impact each of these stats can have on your business.
KPI #1 - Allowable Cost Per Lead
Your allowable cost per lead (CPL) tells you what you can afford to spend, on average, for each lead you generate... while maintaining the overall marketing % you've set in your plan.
Why It’s Important – Keeping your CPL is essential. The less it costs you to generate a lead, the more leads you can purchase with your marketing budget.
Example of its Power – Let’s say you have a $100,000 annual marketing budget. Let’s also assume your CPL, on average, is $100. This tells you that you’ll purchase 1,000 leads. If you could lower your CPL to $80, you would generate an extra 250 leads with the same budget. All things being the same, that small improvement would grow your revenue by 25%.
KPI #2 - Number of Leads Generated
This is the count of new leads your marketing department has generated. The key here is the word “new” Many times; reports are skewed because they include multiple visits/appointments with the same prospect in the lead counts. Be certain to only count new leads in this KPI.
Why It’s Important – This is the first step in determining how many sales and the amount of revenue your company will generate. If you want to generate $1 million in revenue, and only generate 10 leads, it’s likely going to be tough.
Example of Its Power – Let’s suppose you generate 1,000 leads per year. You have a thriving company, a sales team, installers, office staff, and overhead that are supported by this. Now, imagine that we cut the number of leads in half. Now the sales team is starving. You’re not selling as much work, and you're forced to lay off good workers and office staff. On top of that, you’ll still have the same overhead to pay for. Leads are the lifeblood of your business.
KPI #3 - Marketing Percentage
Your marketing percentage tells you what percentage of your revenue is being used to market your business. For example, let's suppose you invest $10,000 in marketing, and bring in $100,000 in revenue. Your marketing percentage would be $10,000 / $100,000, or 10%.
Why It’s Important – This is a critical KPI to track in that it can have the biggest impact on your company’s profitability. Believe it or not! In most cases, job costs (labor, commissions, materials, misc. job expenses) remain fairly similar. Your fixed costs will remain fairly similar as well. However, every percentage point in marketing efficiency will go directly to your bottom line.
Example of Its Power – Let’s suppose 10% of your revenue is dedicated to your marketing efforts. If you could generate the same results (in leads/revenue), and do it at 8% instead, that 2% savings will go directly into your net profit margin.
KPI #4 - Average Dollars Per Lead
Just as it states, your average dollars per lead (or ADL) tells you the average amount of revenue you bring in for every lead your marketing department generates. For example, let's suppose you generate 100 leads, and bring in $100,000 in revenue from those leads. Your ADL would be $100,000 / 100 leads, or $1,000.
Why It’s Important – This stat tells you so many things about your company. It can quickly tell you the amount of revenue to expect based on the number of leads your company generates. It also helps you truly realize the value in every precious lead your marketing department generates.
Example of Its Power – Your phone calls go to your cell phone because you don’t want to pay for a receptionist. Every time you don’t answer the phone (using the example above), guess what that costs you? That’s right, $1,000. Pays for a receptionist (or answering service) pretty quick.
So there you have it! Implement these Key Performance Indicators into your “Marketing Machine” NOW. They’ll help you develop your marketing plan, and help you keep your plan in check!