In 2014, a viral video depicted a scene that would have been hilarious, if it hadn’t been so sobering. It started with bystanders attempting to save a winter sledder, who had broken through the ice of a California lake. The rescue was so badly botched, that in the end, 11 more people had to be pulled from the freezing water.
Have you ever seen this kind of thing happen to a business? I have.
If you’re like many businesses, you may feel like you are constantly treading water in a freezing lake. You’re just a few moments from going under, but there’s hope. All you have to do is get a solid online marketing campaign up and your business will be saved, right?
Online marketing certainly has the potential to save your company, but if you invest in the wrong channel, your marketing spend will be less like a life jacket and more like a cannon on your bootstraps. But unlike sledders swimming in an icy lake, many companies can’t tell whether their marketing efforts are pulling them to shore or pulling them under.
Fortunately, if you’re wondering whether or not a particular marketing channel is helping or hurting your business, I’ve got three words for you: Contribution margin ratio.
Crunch the numbers
Ok, I’ll admit those are probably not the three sexiest words I’ve ever strung together. They’re accounting words, and it’s unlikely that you were drawn to business by the glowing prospect of crunching numbers. But what if I told you a little number crunching could save your business? Trust me, it could.
Luckily, the equation for calculating contribution margin is a cinch.
In accounting terms, contribution margin ratio (CMR) equals sales divided by variable costs. In plainer language, it’s what you made from sales divided by how much you spent on marketing and fulfillment.
Calculating Contribution Margin Ratio
Essentially, variable costs are company expenses that increase as sales increase. There are certain costs that come with fulfilling a sale – things like manufacturing, packaging and shipping. These are your variable costs.
On the other hand, as you spend more on marketing, the more sales you make, at least theoretically.
Unfortunately, if your marketing stinks, then you won’t generate enough revenue from sales to make the investment worthwhile. So how do you know whether a particular marketing channel is helping or hurting your business? Well, let’s calculate a CMR for your marketing.
Marketing Contribution Margin Ratio
So, if you spend $1,000 on marketing, and make $500 in sales, your marketing CMR is 0.5. If you spend $1,000 and make $10,000, your CMR is 10.
Obviously, bigger is better, but how big is big enough?
In my experience, a CMR of three is enough to break even. Above a three, you’re making money. Below it, you’re losing money.
Related: Target Your Market… Or Die
What does this look like in real life?
In case this is all seems a little abstract, let’s see how this works for a hypothetical business. For example, pretend you started a small business a few years back giving aerial tours of the Grand Canyon.
Your plane seats one passenger, and you charge $150 per flight. You haven’t done much marketing, but you have a steady flow of about 20 ticket sales per month from talking to people yourself (direct sales), loyal repeat customers and word-of-mouth referrals.
You’re making $3,000 a month before you factor in your expenses.
Unfortunately, each flight costs you $75 in airplane fuel, wear and tear and other flight costs. That leaves you with $1,500 in profit.
That might be a nice little business, but your costs don’t stop there. You also spend about $2,000 a month on your airstrip mortgage, office utilities and plane maintenance. We call these fixed costs because you have to pay them whether or not you’re making sales.
The long and short of it is: You’re in the hole $500 every month. Or, in other words, your business is sinking.
Now what? You don’t have the money to buy a bigger plane, and you’ll lose the customers you have if you increase your prices. However, you discover that you’re missing out on a lot of sales because most tourists plan their trips online before they travel, and you don’t have an online presence.
In an effort to get your business moving in the right direction, you decide to try online marketing – listings on travel websites, pay-per-click ads and promotional email campaigns.
The only question is, how effective does your marketing have to be to break even?
1X Contribution Margin Ratio
What if you made one $150 sale for every $150 you spent on marketing? That’s break-even, right?
Remember all those fixed and variable costs that were eating up your profit margin in the first place? If you spend as much as you make, you’ll never make any headway against your $500 deficit. Your marketing CMR may be 1X, but you end up losing money on every sale in fulfillment costs ($75, to be precise).
Take a look:
2X Contribution Margin Ratio
What about a 2X contribution margin ratio? If you spend only $75 on marketing to make a $150 sale, you’ll offset your fulfillment costs, right? That’s true, but you still won’t be making any progress against that $500 deficit in your budget from your fixed costs.
3X Contribution Margin Ratio
But what if your marketing was even more efficient? What if you spent $50 on marketing to produce a $150 sale? At a 3X CMR, you finally start to break even as long as you can get at least 20 sales from your online marketing efforts.
Even after you hit a 3X multiple though, it’s still slow going. Your marketing is sustainable, but you can’t really grow your business on this sort of margin. After all, you can probably only make around 40 flights in a given month, which just gets you to your break even point.
4X Contribution Margin Ratio
If you really want to make a profit on your campaigns, you need to get them to produce at least a $4 in revenue for every $1 you spend on advertising.
Now you’re breaking even after 14 sales. If you make 40 flights in a month, you only have to pay for marketing and fulfillment on six flights. At $37.50 of profit per flight, you make $225 per month. All of a sudden, your online marketing is starting to make a lot more sense.
5X Contribution Margin Ratio
Once you hit a 5X contribution margin, you are finally in a good position to start using your online marketing to actually grow your business. You break even at about 11 sales, which means that your last nine sales net you $405 in profit each month.
With that kind of profitability in hand, you may be able to take out a loan, and get a bigger plane, allowing you to book two to four times as many tickets. Your expenses might go up a bit, but if you can fill between 80 and 160 seats a month, you are in a good position to really start making some money.
Here’s the moral of the story
Is this whole contribution margin ratio thing starting to make sense? Good. Let’s boil all that math down into a simple rule of thumb.
- If your marketing CMR is three or below, rethink your marketing. You’re probably losing money.
- At a 4X CMR, your marketing is turning a profit.
- If your marketing CMR is five or higher, you can use online marketing to grow your company.
This is how to up your marketing CMR.
By now you’re probably thinking, “Great, I want a big CMR, but in your story you just arbitrarily upped the CMR. How do I do that in real life?”
Good question. In fact, that’s a question I’ve devoted my career to answering.
The specific answer varies by business, but most companies struggle to reach a 4-5X contribution margin ratio for one reason: They spend their online marketing budget in the wrong places.
Take AdWords, for example. The average AdWords account wastes 76 percent of its budget on search terms that never produce conversions, let alone sales. So if your AdWords campaigns are running at a 3X multiple, the easiest way to get to a 5X or better multiple is to stop wasting money on the wrong keywords.
For example, we’ve had clients triple their sales by simply taking their wasted ad spend and redirecting it into more effective campaigns. As a result, these companies have grown by leaps and bounds and made millions in profit.
Can you imagine what going from a 2-3X CMR to a 6-9X CMR would do for your business?
Find your current CMR
Calculating your marketing CMR is actually fairly easy. You just need to know the following.
- How many sales your online marketing has produced.
- The average customer lifetime value (LTV) of your online marketing sales (for help figuring this out, click here).
- How much you’ve spent on online marketing.
Then it’s right back to the equation from the beginning of the post.
Plug the number you get into my rule of thumb, and you’ll have a good feel for how effective your marketing is.
Here’s the takeaways
Over my career, I’ve met, talked and worked with thousands of entrepreneurs and business owners. Without fail, the success or failure of these companies revolved around their CMR.
Below 3X, companies struggle and die. At 3X, they survive, but just barely. Only the companies that reach a 4X or better CMR thrive. It’s a simple rule of thumb, but an effective one.
So, if you want your online marketing efforts to keep your business afloat, they must be driving at least $3 in revenue for every dollar you spend. Otherwise, your company probably won’t survive.
This article was originally posted here on Entrepreneur.com.
6 Steps To A Digital Strategy That Guarantees Results
Create your Brand Hero (Who exactly are you talking to?)
Your Brand Hero is often a mixture of some of your favourite past clients and could even be a version of you 3 to 5 years ago. Go deep and think about what they love to do, how they spend their time, what they passionately stand for and believe in, where they shop, what sort of holidays they like to take and what values are important to them.
Don’t worry about appealing to everyone, the more niche you can be the better. For example: “I help women with their health” vs. “I help new moms regain their energy through tailored exercise and nutrition”. In the second example, it’s crystal clear exactly who the programme is for.
Do market research. Send out a survey (without actually calling it a survey!) and ask them questions specifically around what their struggles or frustrations are. Ask them to select five ways that you propose to help them and see what they want. You can offer them a prize or a free value-packed download in return for completing the form. Keep it less than two minutes as people are time-poor these days.
Go one step further and select 5 to 10 people from the survey who filled it out in depth and jump on a call with them. Record it via Zoom and have it transcribed using Rev.com – now, you can use the actual words your potential used to describe their struggles into your upcoming marketing posts, email newsletters or sales copy.
1. Tell Stories
To cut through the 1000’s of marketing messages, your Brand Hero sees all day long online, you’ll need to use stories to connect in a genuine and authentic way. As the online market becomes more sophisticated people don’t respond to boring sales copy anymore. Injecting a story is crucial to creating a community around your brand.
People need to feel like they belong and that they know you intimately, especially if you have a personal brand but this can work for any company. Think about Richard Branson as head of Virgin. He blogs and shares his life via social media. He seems like an all-around nice guy who we love to follow and you’re probably interested when he launches a new product or service.
Humans learn through stories and find them easier to remember than a bunch of facts being thrown at them. Think about making your content shareable. Is what you’re creating and putting out into the online world worth a share? Would you share it? Would you be moved to buy from your own message?
“People don’t buy what you do, they buy why you do it” – Simon Sinek
Share your why. What’s the big why behind your brand and business? What’s driving you to do this? What’s important to you? What impact do you want to create in the world? Share that.
2. Show behind the scenes, be real and human
A simple tactic to use for your digital strategy is to show behind the scenes of what it is you do. This can work across the board for many kinds of businesses and show the human side of your brand. Who’s doing the work? How’s your product being created? Where are your materials sourced from? Take people with you on a journey and let them see how it’s created.
If you’re a serviced-based business you can do the same. Instagram Stories, Facebook Live and Instagram lives would be perfect for this sort of thing. Once a week, create an hour by hour account of your day and give your audience a glimpse into your workday.
Be fascinating. Don’t spend all your time consuming content. Turn the tables and get into the mode of creating. Treat your business like a mini media company and always be thinking about what you can share.
Create before you consume!
3. Live video streaming
Live video is by far the number one way to stand out from the crowd. Video will make up 82% of all internet traffic in 2021, according to forecasts released by Cisco. Get uncomfortable by doing the things not everyone’s willing to do. One of those is showing up and giving value on a platform like Facebook Live. Livestreams are great as you can interact with your audience, show your expertise and take Q&A directly from your potential customers.
From a practical point of view make sure you’re in flattering light (preferably natural light from a large window) or invest in some decent lights on a stand. Use a tripod. Get a Rode VideMic Me, a directional microphone for Apple iPhone and iPad so that your sound quality is good. Have your juicy topic ready and write out some bullet points on a whiteboard so you don’t lose track halfway through. Now 5, 4, 3, 2, 1 press that blue live button!
4. Grow your List with an opt-in freebie and give results ahead of time
It’s not enough to rely on social media platforms alone. With ever-changing algorithms and the fickle nature of human behaviour, putting your eggs in one basket could come back to bite you. You don’t own Facebook, Instagram, Twitter or Linkedin. Take Snapchat for example. When Instagram introduced Instagram Stories, and basically swiped the idea and format, Snapchat lost users in droves! Ensure that you build your email list as that’s a rather valuable asset for your business and if you decide to sell in future you’ll get a higher price if your database is substantial.
Create a valuable PDF, Video series or Mini-Course that people would be eager to hand their names and email addresses over to receive. Create a simple opt-in page or a pop-up on your website with the enticing freebie offer. Once people agree to hear from you, you can then follow up with a welcome sequence and email out your newsletter regularly from your chosen CRM (Customer Relationship Manager) such as Active Campaign, Drip or MailChimp.
Remember to share stories, behind the scenes and valuable content with your readers and don’t simply bombard them with sales offers.
5. Be consistent
Pick two social platforms to focus on in the beginning. Don’t feel as though you need to be on every single one. The most important thing to remember is consistency. Get really good at posting regular content on a consistent basis. Engage with your audience. Respond to direct messages and comments. Build a loyal audience before expanding out to other platforms.
You can use blog posts, like I do, as pieces of pillar content that can then be spread around social media and posted to many platforms. My readers know that every Monday I release a value-packed blog post that will help them move the needle forward in their business. This goes on Facebook, Instagram, Twitter, Linkedin, Medium and gets emailed out to my list via MailChimp.
Related: Creating Power Digital Campaigns
6. Use launches to sell new offerings
Everything mentioned above falls under regular, organic content. When you have a new product, service or program to put out into the world you’ll need to map out a launch plan. This will involve going live more often, posting more often, creating branded graphics for social media and putting some budget behind paid traffic. You can do this by boosting your Facebook lives for example or sending paid traffic to your opt-in freebie that you’ve created so that you build your following faster and have eager buys to launch to.
To keep up to date with Chanelle’s tips visit http://segeriusbrucecoaching.com/blog/
The Seven Rules Of Social Media
Here are 8 tips from the proverbial digital playbook.
Social media has become indispensable when it comes to marketing and PR. Smart, carefully thought out, and well implemented social media strategies have shown to increase exposure and engagement, improve search engine rankings, increase turnover, encourage brand loyalty, and improve lead generation. Converting social media followers into true fans is the key and will set you well on your way to creating long term customer advocates and “ideal” customers.
Here are 8 tips from the proverbial digital playbook. They lay out exactly what brands can do and the ground rules that they should follow to prevent social media faux pas:
1. Don’t Over Promote Your Brand
Your profile or page on any social media platform should clearly communicate your brand message and offering to your target audience. Your social media posts need to be more than overt marketing tactics. Offer your audience relevant, interesting, and engaging content. Overly sales orientated content is a sure way to lose followers. Conversational and on trend content is the way forward.
2. Think Before You Post
Always take the time to properly consider your content before posting it. Think it through and ask yourself if it is relevant to your target customer, if it uses the correct tone, and does it put your brand message across accurately. Consider the purpose of each social media platform and the content that is generally consumed on each of them.
Plan, evaluate your messaging, and use relevant hashtags.
3. Always Fact Check & Cross Reference
Fact checking isn’t just for journalists and TV news. Always fact check your content, especially when trying to tie in news and current affairs into your messaging. A careless mistake in your content can be extremely damaging to your brand. Making time to fact check can save you at the end of the day.
4. Damage Control
It is important to react quickly and professionally, be careful not to respond with knee jerk reactions. Never delete a post, comment, or response. It is important to own your failures and mistakes. Address issues out in the open and hold yourself accountable if need be. How you respond will make all the difference at the end of the day. You need to be prepared to take immediate action, to act fast, and at any time.
Take the time to properly assess the situation and make a calculated decision that is in the best interest of your business and brand. Transparency is key and showing that you managed a situation flawlessly will only reflect positively on your business.
5. Post Regularly
Manage and maintain your social presence effectively while promoting your offering by posting regularly. This ensures that your brand is kept top of mind while increasing brand exposure. It is important to keep in mind that over posting is not in your best interest and will only hold your brand back from gaining traction in the online space.
Your online audience and social platforms including social media could very possibly view your content as spam and flag it as such, including on Facebook. One to three posts a day are best practice and a formula used by most brands the world over.
6. Invest In The Time To Do Solid Research
Researching your customer personas, target market, your niche in the market, and so forth, should be researched very early on in the making of your business. However, going forward research makes for amazing content that is tailored to your target audience. A few hours of solid research can go a very long way in the process of creating quality social media content. Posting social content for the sake of the act itself is simply not an effective strategy. Posting carefully curated content for your target audience will yield higher engagement and conversions.
7. Never Ignore Enquiries & Comments
Social media allows for two-way communication and conversations between businesses and their potential customers. Social media goes beyond simply putting the content on your timelines and onto the news feeds of your audience, it includes engagement between brand and customer in the online space. It is important to acknowledge your followers and your fans, every single time. This encourages brand loyalty and gives the impression that you value your followers. Answering messages and responding to comments shows that your brand is present and listening to the needs of the customer. Personal engagement and a speedy response speaks volumes.
Your first step is to consider getting a respected social media specialist onboard. Johannesburg based So Interactive is a highly respected digital marketing agency with an excellent reputation in South Africa and across borders. So Interactive is a boutique studio offering clients quality digital solutions. Get in touch to get your next digital campaign off the ground. Talk to So Interactive, and together you can create a winning social media marketing campaign.
The Six Second Sweet Spot
Six-second video has been all the buzz since Google showcased the best of its six-second hackathon at Sundance in January 2017.
In June last year, Fox announced it was on board with six-second bumper video ads. Google recently performed a study which established that nine out of ten bumper video ads drive ad recall while 61% increased brand awareness. Six seconds is proving to be the perfect time frame within which to tell your brand story.
The six-second video amplifies the beauty of storytelling in that it creates a much faster, more accessible and memorable way to communicate messages. The time constraint can be quite daunting and, at first, some would consider it a creative hinderance. However, a short sentence, a single word, a stand alone image, or a six second visual is often more than enough to catch and keep the attention of your audience as it pushes creatives to think differently and with more focus.
YouTube recently challenged creative agencies worldwide to retell fairytale classics by using only six-second video. The challenge was met overwhelming enthusiasm and creativity. From Bollywood classics to local folktales, every entry proved, for the first time, that short, powerful stories have much broader impact and memorability than their longer counterparts.
Related: The Launch Of Instagram TV
Six-second video is a snackable content trend that is paving the way forward for online content. Respectable industry leaders and key players in the field are predicting that six-second video ads will continue gaining traction at the end of 2018 and through into the coming year. Short form video has literally become the six-second sweet spot and will continue reshaping the way digital marketers address their audiences.
So Interactive, based in Johannesburg, are known for their work in video. If you are looking to create a six second brand message or a short series of six second videos that form a single brand story, then So Interactive is a fantastic fit and brilliant option. Go with the professionals, get a brilliant creative team on board, and get your six second video out to the world. Get in touch with So Interactive to discuss your next six second video marketing campaign.
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