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Marketing Tactics

How Much Did That New Customer Cost You?

In his book, The Fusion Marketing Bible, author Lon Safko focuses on ways to analyse your marketing efforts and leverage synergies across platforms to produce the best results.

Lon Safko

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In this edited excerpt, Safko lays out the crucial steps to determining your plan’s effectiveness: the cost of customer acquisition.

Every business should look at its cost of customer acquisition twice a year and after each campaign. The old business adage goes, “You can’t manage what you don’t measure.” Yet we fail to measure these costs all the time. We seldom take the time to see how effective our marketing was.

A poor return on investment can have a variety of causes. Maybe your demographic has shifted, or maybe your prospects are getting their information from a new source. Or maybe a particular campaign was never effective, and you just didn’t know it.

Here are some typical industry standard cost of customer acquisition values, the amount of money each company spends on average on marketing and advertising to acquire just one new customer:

  • Travel: Priceline.com: $7
  • Telecom: Sprint PCS: $315
  • Retail: Barnesandnoble.com: $10
  • Financial: TD Waterhouse: $175

One miscalculation that many business owners make involves the ease with which they will attract customers. This is called field of dreams marketing. Small-business owners are generally experts in some other areas and somehow they believe that if the core message of their marketing is, “Hey! We are selling XYZ, and we’re now open!” people will start pouring through the door.

This is why most start-ups are short in what they budget for marketing, which is often less than 10% of their operating budgets. The idea of a saturation campaign across a variety of media is foreign and would be viewed as an unnecessary expense. After putting out a big opening-day announcement, a banner, some flyers and a few small ads, they are astounded that they sit around all day looking at their expensive inventory.

Professional marketers understand the importance of marketing. The amount of advertising “clutter” is so vast that trying to gain new customers with a few ads and flyers is like trying to make a splash in the ocean with a handful of pebbles. According to the Small Business Administration, 30% of all new businesses fail within two years and 50% fail within five years.

While there are a variety of reasons for this astounding failure rate, the primary cause is usually a misunderstanding of marketing and a failure to budget the necessary marketing dollars.

To begin an analysis of your marketing campaigns, pick a relatively quiet day and lock yourself in your office with your accounting reports.

Using a whiteboard, a spreadsheet or a yellow pad, create separate headings for every campaign you did last year: newspapers, telemarketing, trade shows, door hangers, whatever. For now, let’s stick to traditional media marketing, as it has a higher cost of implementation than social media marketing.

You are going to measure your marketing by using actual numbers – a scientific approach – and not fictitious “impressions” to gauge the effectiveness of your campaigns. Impressions is the term used to quantify the number of people who will see your ad.

Actually, it is the number of people who will receive the magazine or newspaper, not the number of people who actually read it. When you buy radio or TV ads, your cost is based on the number of listeners or viewers the program had in the latest ratings book.

Under each heading, list every expense associated with that campaign. In marketing, a “campaign” often includes several different media, such as a print ad, flyers, radio ads, web site promotions, and others. You’ll have to separate out the costs and results of each component of each campaign.

For example, you probably executed a direct-mail campaign during the past year. Direct-mail campaigns are time-consuming, labour-intensive and usually expensive. You must increase revenue at least enough to pay for your activities in order to justify doing those activities in the first place.

Direct-mail campaigns involve many obvious expenses, but also many that are not so obvious. First comes the development of the mail piece, which includes writing copy, artwork, logos, images, possibly photography and layout. Then there are the costs of getting the piece to the printer, redlining proofs and the printing itself.

You can test to see which envelope, headline, offer, price and even colour combination gets the most response, which costs money. Then there’s the cost of paper. And once printed, the piece needs to be machine folded and stuffed into the mailer.

There is the cost of the mailing list, postage and labour – your staff and yours. You may also want to prorate your cell phone, landline, auto and even technology costs, because without them, you’d be working on your campaign from a park bench. Remember to add in public relations and sales costs if they contributed to lead generation.

Congratulations. You’ve calculated the costs associated with one direct-mail campaign. Now repeat this process for each of your other marketing campaigns. If your campaigns included trade shows or conferences, add in airfare, hotel, meals, taxis and your travel time. The more accurate the expenses are, the more accurate your results will be.

Lon Safko is a bestselling author, speaker, trainer, consultant, and is the creator of the “First Computer To Save A Human Life” as coined by Steve Jobs, Apple, Inc. That computer, along with 18 other inventions and more than 30,000 of Lon‘s papers, are in the Smithsonian Institution in Washington, D.C.

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Marketing Tactics

Useful Marketing Tactics For Growing Businesses

Customer acquisition, customer experience and content marketing can be identified as the three most important marketing strategy areas to focus on.

Jandre de Beer

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Digital marketing offers the business world so many advantages, including the ability to communicate with their target markets quickly and easily. Unfortunately, digital marketing has also opened doors for companies to flood mail boxes, news feeds and ad spaces with junk mail and spam resulting in customers tuning out to anything irrelevant and suspicious.

Customers have become less likely to trust companies and less receptive to messages. The only way for valuable messaging to stand out from the noise is if a business knows how to market itself properly.

Over and above advertising, there are a lot of other aspects that contribute towards an effective marketing strategy, these include research, email, content creation, list curation, social media and even customer service. To be a successful marketer it isn’t necessary to become an expert in every single marketing tactic, but it is important to master the most important areas. Customer acquisition, customer experience and content marketing can be identified as the three most important marketing strategy areas to focus on.

1. Customer acquisition

Of course, not all customers are the same. Some customers are only interested in buying products on sale from a particular brand and then never interact with that brand again. Acquiring, and of course retaining customers with a high lifetime value should be the overall objective for businesses, but this requires more time and money being invested in better, more qualified leads. While the upfront costs might be higher, in the long-term this investment will pay off with continued business from these lifetime customers.

2. Customer experience

Competitive pricing can’t be the only aspect that businesses focus on in order to stand out against competitors. In the current digital era customers expect a good customer experience when they deal with brands so this should be an important focus area for all businesses. Customers expect fast and seamless experiences such as intuitive user interfaces and processes, fast websites and service response times, as well as accurate information about the problems they face.

Customers don’t want to waste their time on websites that require them to jump through hoops, and they definitely don’t want to feel misled by anything a business is communicating. Customers will quickly move on to other sites that offer better experiences as well as other businesses that are more trustworthy. Good customer experiences can go a long way.

Offering more personalised, interactive engagement tactics and improving the customer technology interface should be high priorities for businesses.

3. Content marketing

Marketing is no longer about telling customers that your brand is the best. With the movement towards content marketing, marketing has become about showing customers why you are the best. Content marketing is a legitimate, effective strategy that every business and brand should make use of. While content marketing is a lot more cost effective than outbound marketing, it also generates three times as many leads and offers many other benefits.

Content is a key feature for growing businesses who want to survive in an information rich environment. Customers are looking for brands that provide value beyond their products so creating high-quality content can help you grab your audience’s attention.

In conclusion

Although there are many other factors that are involved in an effective marketing strategy, seeking out customers with a high lifetime value, providing them with a great customer experience while also providing them with valuable content is a recipe for success.

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Marketing Tactics

An ‘Outside-the-Box’ Approach to the e-Commerce Unboxing Experience

Get started by keeping three elements in mind – recyclable/re-usable packaging, personalised thank-you notes and free samples.

Daniella Shapiro

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With a predicted 24,79 million e-commerce users in South Africa by 2021, online shopping is here to stay, making it impossible to escape the predicament of perfecting the art of product packaging. It’s time to think outside the box when it comes to creating a meaningful unboxing experience. Get started by keeping three elements in mind – recyclable/re-usable packaging, personalised thank-you notes and free samples.

Recyclable/Re-Usable Packaging

Certain types of product packaging are having a tremendous negative impact on our environment, with 5.35 trillion pieces of plastic debris littering the world’s oceans, and with 269,000 tonnes of this amount floating on the surface – and plastic isn’t the only culprit. Did you know that it’s impossible for Styrofoam to ever be broken down completely? And that 1 million single-use coffee cups wind up in landfill every single minute of every day? These statistics make it obvious as to why it’s becoming so important for business owners to be more conscious about the type of packaging that they use.

Many business owners wonder if their customers really care whether their business is doing its part to protect the environment. According to Forbes and a 2017 Cone Communications CSR Study, the answer is a resounding ‘YES, they most certainly do!’.

87% of the consumers surveyed stated that they always have a more positive image of a company that supports social or environmental issues, and 88% claimed that they usually feel more loyal toward a company that they know supports social or environmental issues.

Thoughtful Thank-You Notes

The unboxing experience should be a unique and personal one, and it should be just as memorable as the experience of utilising the product itself! So, make it all the more special and build customer loyalty by including a personalised thank you note. Address the customer by their first name, thank them sincerely for their patronage and end off by giving them some helpful advice regarding the product, or share an interesting benefit of using it. Go the extra, extra mile by hand-writing the letter too.

Free Samples

Everyone loves getting free stuff. Why not bolster the unboxing experience by sending over a little bit more than expected? Not only will a free sample put a big smile on the face of the receiver, if they actually enjoy using it, there’s also a good chance that they’ll be coming back to order more. According to Shopify, free samples have the potential to boost sales by as much as 2,000%.

When it comes to packaging, make the right choice. Sustainable, thoughtful, memorable. Your customers, and the environment, will thank you for it.

 

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Marketing Tactics

The Facebook Ads Strategy That Can’t Lose

It’s a numbers game.

Entrepreneur

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Running a profitable Facebook Ads campaign is simple. Not always easy, but simple.

There is a formula that can guarantee a profitable Facebook Ad campaign. Once you know the formula and the values to plug in, you’ll never sink money into a losing digital ad campaign again. I know it sounds too good to be true, but stick with me…

The Guaranteed Growth Formula

Here’s the entire formula: CPA < AP

Were you expecting coefficients, remainders and dividing by polynomials? Nope, there are only two values that matter when assessing your digital marketing funnel.

1. CPA – Cost Per Acquisition

2. AP – Average Profit Per Client

If your Cost Per Acquisition, the amount you pay to generate a paying customer using Facebook Ads, is less than the Average Profit you make from each new customer you’re guaranteed a profitable campaign.

Calculating Average Profit

To get average profit per client, sum your total revenue from new clients and subtract what you spent to serve them. Divide the result by the total new clients. For example, if you made $75,000 from 10 new clients over the past year and it cost you $40,000 to serve them, your average profit is:

 ($75,000 – $40,000) / 10 = $3500 Average Profit Per Client

If your average acquisition cost for similar future clients is less than $3500, your campaign will technically be profitable.

Of course most businesses won’t want to spend all of their profit on acquisition. An average business can expect to invest at least 7 percent but no more than 15 percent of revenue in sales and marketing. If Cost of Goods accounts for 60 percent or more of total revenue, your low profit margin may make it difficult to afford successful advertising. Decrease operating costs by increasing efficiency or adjust your margin by raising prices.

Don’t make the mistake of calculating Average Profit based on revenue only from the first sale. Use at least six months of revenue or your lifetime client value as the basis for your calculation, or you risk underfunding your marketing and sales budget.

Related: Here Is Why Your Facebook Ad Campaigns Aren’t Producing Results

Calculating Cost Per Acquisition

Let’s assume you’ve considered all of your marketing and sales costs and determined you can spend $350 per new client on Facebook Ads. Let’s reverse engineer your ad campaign to see if a $350 cost of acquisition is reasonable.

The simplest Facebook ads funnel includes four metrics that build upon each other to determine your acquisition cost. I’ve included standard benchmarks for use as a starting point, but your results may differ:

1. Click-Through Rate (CTR) – Percentage of people clicking on your ad. Your CTR should be near or above 1 percent.

2. Cost Per Click (CPC) – The cost of one website visit. CPC should generally be below $3.

3. Lead Conversion Rate – The percentage of site traffic that becomes qualified leads. This value should be 20 percent or above.

4. Sales Conversion Rate – The percentage of leads that convert to a sale. Aim for sales conversion at or above 5 percent. (E-commerce companies often skip the Lead Conversion stage and have a Sales Conversion Rate of 1 percent or greater.)

If 10,000 people view your ad at a 1 percent CTR, you’ll get about 100 website visits. At a $3 CPC, you’ve spent $300. Since 20 percent of your traffic will become leads and 5 percent of those leads become closed sales, we can calculate that you’ll generate approximately 60 leads and three new customers.

Your estimated acquisition cost using Facebook Ads is $100 per client, which is well within your budget of $350. This cost may rise as you scale and target less optimal prospects, but as long as your acquisition cost is less than $350 you’ll make an acceptable profit.

Complex funnels can include several ads and conversion points, but the Guaranteed Growth Formula of CPA < AP still applies. There’s no immediate reason for concern if your metrics differ from the benchmarks. You can and should split test ideas for improvement if your numbers are far from what you expect, but don’t mess up a good thing until you’ve got a better one.

Optimising Your Guaranteed Growth Funnel

If unhealthy metrics cause your acquisition to cost more than what you’ve budgeted, start with these adjustments:

Click-Through Rate Too Low or Cost Per Click Too High

If your CTR falls far under 1 percent Facebook may stop showing your ads or show them to second-rate audiences causing your traffic to tank and CPC to increase. To improve your click metrics, adjust your ad copy (headline and body text), ad creative (image or video) and highlight the benefits in your offer.

Refine your audience. Tailor your copy, images and call-to-action to the audience you’ve selected and ensure that your audience has the desire and means to act.

Lead Conversion Too Low

If leads aren’t converting at 20 percent or more, either the promise made by your ad isn’t congruent with your landing page, or the process of moving forward is too difficult. Try using the same image and headline in your ad and reduce the form fields in sign-up forms to the bare minimum. Also try retargeting visitors who don’t sign up with ads stating the benefits of acting now, or with a different offer.

Related: Staying Relevant In The Facebook Age Of Meaningful Social Interactions

Sales Conversion Too Low

If you’re an Ecommerce brand with sales conversion below 1 percent your shopping cart or sales process may have too much friction. Simplify the sales process to decrease clutter, or increase trust by adding testimonials and trust signals near important calls to action.

Your sales process may need improvement, but that is beyond this article. In the meantime, you can still increase revenue by cross-selling and upselling those who convert. You may also improve client retention with recurring contracts. Yes, that’s why many software companies are switching to cloud-based subscription models.

When used properly, The Guaranteed Growth Formula of CPA < AP makes Facebook Ad marketing an investment, not an expense. Using the formula, the most you should ever risk is a small initial budget to test whether your estimated calculations hold true in practice.

If your net profit is 3X your acquisition cost, your funnel returns $3 for every $1 you invest. Instead of asking “How much should I spend on marketing?” The question becomes, “How much do I want to make?” I’ve built a Facebook Ad Growth Calculator that incorporates the Guaranteed Growth Formula to help execute your growth strategy. Input your revenue goal and it will estimate the Facebook Ad impressions and traffic required to reach it.

This article was originally posted here on Entrepreneur.com.

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