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.
A Basic Guide To Twitter Analytics, How It Works, and How It Can Help Your Marketing
As a business owner, your marketing efforts on Twitter can now be tracked via the new Twitter Analytics tool, which shows engagements & impressions on each tweet.
In 2014, Twitter finally launched Twitter Analytics, which allows the more serious user to track their tweets from a marketing perspective. Using this tool, you can see which tweets reached the most users, how many impressions it received, and the overall reception for specific marketing campaigns. Here is a simple guide to using Twitter Analytics.
Using this tool means that you can gauge tangibly and transparently the reach of each marketing campaign you launch. The launch might have been long overdue, but since then Twitter has been updating their analytics tool little by little and improving the user experience.
They have since launched a Twitter Analytics standalone app called Engage. They also launched Twitter Moments, which allows users to edit multiple tweets and stitch them together into a single slideshow or video. This is another excellent tool for concluding or summarising a marketing campaign from beginning to end for prosperity and marketing purposes – for example, Rocket Ellie, the flying elephant billboard in Cape Town, South Africa.
For any regular Twitter user, you might have given Twitter Analytics a quick look when it first came out, but unless you’re interested in evaluating the reach a sponsored tweet would have versus a regular tweet, it won’t mean much to you. Just a glance shows that you can view impressions and engagements, but unless you know how to use this tool to its full potential, it might as well be useless.
How To Use Twitter Analytics
This tool can be found in the drop down menu underneath your name on the homepage. Here you’ll also find options for your profile, Moments, Twitter Ads, settings and more. With this tool, you can see your Twitter engagement rate. This is where you can view how many people saw your tweet, how many new profiles have followed your account, and how many likes, impressions and retweets each tweet has gained. It also includes replies and how many clicks your links or hashtags received. This is very helpful to see if your content is getting the desired reaction, and maybe you should take your hashtag back to the drawing board.
What’s the point in posting content that your audience isn’t interested in? This tool is an excellent way to evaluate how your target audience has received your content. You can use it to see what works, and what doesn’t. Your audience will tell you if they like your content, but it might not be as blatant as you would prefer. Therefore, using this to drive your content and marketing strategies provides a massive benefit when launching future campaigns, if you want them to be successful.
Use it to better connect with your audience, and at the end of the day, more prospective buyers will become real, paying customers who are interested in your business, and who will help further your brand.
Impressions vs Reach
A Twitter impression is how many times your content has appeared on someone’s timeline. Twitter’s new algorithm has made this easier by posting your tweets onto other users’ timelines if many accounts they follow have liked or replied to your content already. The point of this algorithm is to help people engage with others who are like-minded, which means that if five like-minded people enjoy your content, the chances are high that some of their followers will enjoy it too. However, the number of impressions doesn’t tell you how many accounts, if any at all, actually interacted with your tweet. Therefore, how do you know how many people you are reaching with your content?
If impressions tell you how many times your content appeared on people’s feed, then your reach is how many users have the potential of seeing it. When your content appears on the timelines of people who do not follow your account, as stated before, that is your reach.
So how do your tweets perform on this platform? The tweet activity tool allows you to see, in a chart, if your tweets are achieving their goals. For many users, a question they ask themselves frequently is how their tweet took off so suddenly, in comparison to others? Even regular accounts who use Twitter for the social aspect of it, can spend time constructing the perfect joke only for another to perform better. There are tools available that can analyse your followers or recommend what time of day, or day of the week, is best to post your best content. However, the easiest way to answer the question of performance, and how to get to know your audience, lies within your own account data.
There are two ways to do this: you can either post tweets in groups within a particular time frame or analyse the activity on specific tweets individually. The latter is simple – when you select one of your own tweets, along the bottom bar, next to the attach images, GIF and emoji tabs – picking the bar graph icon shows the number of impressions, likes, clicks and retweets that single tweet received. It can be time-consuming; however, it provides valuable information according to what your audience likes. For example, your tweets with images or video content attached may receive more impressions than tweets without, meaning that you should post more content like that, more often.
In Twitter Analytics, under the tweets tab, you can customise your tracking to show only a certain period – for example, the weekend where most people receive their salary, or over the Christmas holidays – to see how your tweets performed during that time.
Using Twitter Analytics, you can do so much more than what has been mentioned. You can track your followers, and more specifically, the types of people who follow you. If you notice that a large portion of your followers is stay-at-home mothers between the ages of 28 – 35, you can customise your content according to the interests of that demographic. You can also learn about Twitter ads, how to promote your business, what works and doesn’t work, and if it is even worth the money. Twitter Analytics is an untapped oil reserve when it comes to tracking and gauging your audience’s reaction to your content, and adjusting your content and marketing strategies accordingly. Take the plunge into Twitter Analytics; it’s worth it!
The Top Ten Marketing Trends To Look Out For In 2019
With 2018 behind us, there is no better time to start looking to the future.
Most people start making their new year’s resolutions this time of the year, goals to make things better for themselves in the coming year. This is something that businesses need to look at doing too.
Running a digital marketing agency means one needs to keep ones finger on the pulse.
The world is continually changing and developing, and if businesses want to survive and thrive, then they need to grow and develop too.
As with everything else, marketing is also continuing to change over time, so it is important for businesses to be on top of the newest trends. Even if 2018 was a successful year for you and your marketing team, don’t get left behind by ignoring the latest trends. Make the necessary adjustments to ensure that 2019 is just as successful.
Maintain an advantage over your competitors by preparing yourself and adjusting your marketing strategy before they do. Whether your current marketing strategy is working for you or not, this article will help you by identifying the top ten marketing trends that businesses should look out for in 2019.
The first few trends look at technology that you have likely already heard of, but with constant advancements in technology, it is still worth taking a look at.
1. Chatbots and live chat
Although this is not a new technology, chatbots and live chat is becoming very popular with businesses all over the world. People are interacting with more and more chatbots on a daily basis. This technology has become so popular because of the benefits it offers businesses in terms of customer interaction and better customer service.
In a very conversational way, chatbots message back and forth with customers for a number of tasks, such as suggesting products to customers and ordering the items. Chatbots enable businesses to provide a 24-hour service to customers by providing customers with an instant response to questions, providing an easy form of communication, resolving complaints quickly and providing a good customer experience. It is a lot easier for customers to communicate with chatbots online than it is for the customer to phone or send an email to a company representative.
According to research, live chat makes it three times more likely that customers will complete the purchase process. With so many benefits to businesses, it is very likely that the use of chatbots and live chat will continue to grow in 2019 and beyond.
If you want to experience chatbots, feel free to visit this link and click on the chat button that appears on the screen.
2. Enhanced personalised recommendations
This technology has already stared becoming the way of the future. Personalising the customer experience is a trend that most businesses are already starting to implement, whether it is recommending movies or series when watching Netflix or recommending other products that the customer might be interested in based on previous buying behaviour, this technology can help businesses enhance the customer experience by giving the customers more of what they want.
This artificial intelligence algorithm is constantly being bettered and is making more accurate recommendations as time goes on. This is a trend that should not be ignored in the coming year.
3. Facebook and Instagram adverts
The trends around paid social media ads are constantly changing. With these changes it is becoming obvious that businesses prefer to focus their attention on Facebook and Instagram ads over other social media platforms.
Social Media Examiner published the following data to show how ads on social media sites like Snapchat and Pinterest are becoming less popular with businesses, while Facebook and Instagram are growing in popularity.
As we know, Instagram is owned by Facebook, so it is not a surprise to see these two social media sites growing in popularity together. Businesses are able to manage ads on both these social sites in the same place. The format of these sites make it much easier for businesses to create ads that target the right audience, based on its needs.
Although it is a good idea to advertise on as many social media sites as possible to ensure that you are reaching the largest audience possible, it would be wise to focus most of your attention on these two top trending sites. If you are only looking at making use of paid social media ads in the coming year, then these two sites are the ones to start with.
4. Voice search
Voice recognition software has been around for a while, but the technology is evolving at a steady pace. Google Home now has a 95% word accuracy which shows how the technology is gradually getting better and more accurate. Voice search makes it easier and faster to search apps, to conduct web searches and even conduct image searches. Very soon, voice searches may represent the majority of total searches.
With voice search technology, people are searching for information, making purchases and even interacting with websites using only their voice. In time businesses will need to rethink how information is presented to audiences and may even be forced to come up with entirely new structures to keep up with this change.
In was reported that as of January 2018, voice searches were conducted 1 billion times a month, and in 2019 this figure is expected to grow. As a business, this should be flagged as technology of interest.
5. Mobile payments
Marketing your products and reaching potential customers is only half the battle won, the other half is completing the sale. Being able to offer customers a variety of payment options is something all businesses need to look at. A growing trend in this regard is mobile payments, so this is another option that businesses need to look at offering customers.
One portion of mobile payments allows customers to pay for goods and services directly from a mobile app, another portion of mobile pay comes from alternative payment options.
In 2018 an estimated 440 million users across the globe used contactless pay options, and this number is expected to increase in 2019.
The following graph shows exactly how this trend has been growing.
Your business should be prepared to accept these types of payments because consumers are getting used to it. If you don’t have their preferred payment option, they may take their business elsewhere.
Related: Free Sample Marketing Plan Template
6. Interactive video content
Video marketing is a trend that has been on the rise for many years. More and more videos are being uploaded to social media and websites as part of marketing strategies. Video blogs (vlogs) have also been taking off in this regard. In 2019 we will start seeing changes to the way video is consumed with an increase in interactive videos.
An example of an interactive video is a 360-degree video that allows users to view the whole area being discussed in the video by clicking the navigation button in the top left-hand corner of the screen while the video is playing.
This 360-degree video was uploaded to YouTube by Washington Post.
Offering interactivity with videos means that more people can engage with your content. Interactivity also makes your videos more exciting for your viewers to watch than traditional videos. Research has shown that 360-degree videos have a greater click-through rate than traditional video formats, offering a higher return on your investment.
This is a trend that will continue to grow due to its popularity, so it definitely worth looking into now.
Instagram has decided to re-envision mobile video with the introduction of IGTV. This new standalone platform has been developed specifically for mobile phones. Instagram has caught onto the fact that people these days are watching less TV and more videos. They have decided to develop this trend and cater to the growing wants and needs of the masses.
Instagram is definitely evolving with the times and its popularity has continued to grow because of this since its launch in 2010. Instagram currently has over 1 billion active users on its site, so even if a small percentage of these users download IGTV, it is still a large audience for marketers to target.
It will be highly beneficial to have an active presence on both Instagram and IGTV in order to use the large number of current users to your advantage. With the IGTV platform being so new, try to get a step ahead of competitors by getting to know the platform and producing content for it.
8. Beacon technology
In a mobile era where mobile apps are becoming more and more popular, businesses need to get onboard with the latest technology if they want to stay current. Beacon technology is a great way for businesses to improve the profitability of their mobile app. This new technology works in a similar way to GPS, just not quite as complex.
Firstly, with this technology retailers need to encourage their customers to download their mobile apps. Once the customer has downloaded the app on their mobile phone, the app will be able to track their location. Retailers can then strategically place beacons around the shop so when the app users walk past a beacon, the business will know exactly where the customer is and what the customer is shopping for. With this information businesses can then send the customer a promotion via push notifications.
This technology can even be used by businesses that only have an ecommerce platform. Beacons can be placed in public areas relevant to what the business offers. Promotional push notifications can then be sent to the user when they are in the vicinity of the beacon.
Below is a visual representation of how the beacon technology works.
2019 Will see a rise in popularity with this technology because of the rise in popularity with mobile apps.
9. Predictive analytics
Predictive analytics is very much related to personal recommendations in the sense that it uses a variety of statistical techniques that analyse current and historical facts to make predictions about the future. Businesses can use predictive analytics to gain a competitive advantage by uncovering new opportunities. Predictive analytics are used to determine customer responses or purchases and help businesses to attract and grow their customer base.
Technology like this can be so beneficial to a business, and that is why more businesses are making use of it. Its popularity is growing and will definitely continue to grow throughout the coming year and many years to come.
10. Artificial Intelligence and machine learning
Artificial intelligence (AI) and machine learning is by no means new technology, in fact, many of the trends discussed in this article make use of AI and machine learning. It is so important for businesses to learn the marketing skills needed to survive in this age of AI as it is the fastest growing technology and no business can afford to ignore it. Ignoring developments in technology could mean that businesses will not be able to keep up with competitors.
It is so important for all businesses to recognise the newest trends and to keep developing their marketing strategies along with new technology in order to be able to compete in such a competitive, ever-changing market.
2019 Is sure to be a very big year for marketers so I hope that by following these trends, your business will find success in the coming year.
Now’s The Time To Go Digital
The digital age has completely transformed the way businesses market their products and services to their customers. As a result, the playing field of industries both big and small has forced companies to relook their strategies.
- Call: 086 142 8710
- Visit: www.digitalschoolofmarketing.co.za
Digital marketing is a broad term covering digital channels that people use to market their products. But what makes digital marketing different and unique compared to traditional marketing channels?
It gives the marketer or advertiser the opportunity to hone in on specific audiences that are more likely to purchase or see value in their offer, says Lisa Schneider, Managing Director at the Digital School of Marketing.
“Because digital marketing is computerised, it allows the marketer to get accurate analytical data about their campaigns, both in the research phase and when their campaign has finished. This makes digital marketing an easy way to gauge ROI of marketing and advertising efforts.”
Do you know how to market your businesses online?
Regardless of the size of your business, to remain successful, you need to have a good understanding and grasp of what digital marketing is and train your organisation on the skills it involves. According to Lisa, digital marketing skills encompass aspects that include:
- Analytical skills
- Social media skills
- Search marketing skills
- Copywriting skills.
“Without a doubt the most important element is understanding who your customers are and what makes them tick. One of the biggest advantages by far in digital marketing is the ability to market to an audience, assuring that your message will be seen, heard and appreciated,” says Lisa.
“The technology that is made available to market products in the digital realm is sophisticated software that allows the marketer’s message to be seen as widely or as granularly as they would want. A solid understanding of your target market is absolutely one of the most fundamental and important elements of digital marketing.”
Advance digitally without breaking the bank
Marketing is an expensive exercise no matter how you look at it, says Lisa. “Digital marketing requires a solid understanding of many different areas that are quite broad, and how to manage and understand a multitude of platforms and analytical data is imperative. This will allow the marketer to extract the most value without burning a hole in their pocket.”
As a business owner, you must look at what is out there in terms of online education providers. It’s important to do your homework about the company and what accreditation and endorsements the company holds.
Lisa suggests contacting the accreditation body to find out the legitimacy of the educational provider. The Internet provides a wealth of information regarding different institutions and how their courses can benefit the company.
What defines a reputable online marketing education provider?
Authentic online education providers have a third-party accreditation or endorsement. In a nutshell, accreditation means that a third party, that is usually government regulated, has looked through the institution’s educational material and internal business procedures to see that it has met their standards of approval.
What this means is that the education provider is not self-governed but is regulated by higher government authorities. This makes your course more credible, recognised and respected compared to a non-accredited provider.
For best results, choose the experts
“The Digital School of Marketing stays on top of trends through solid research,” Lisa explains.
“Google is constantly updating algorithms and adjusting their online marketing platform capabilities. Social networks also come and go and adjust their marketing and advertising platforms.”
Related: Free Sample Marketing Plan Template
DSM prides itself on the ability and appetite to constantly research trends by reading industry journals, attending workshops and seminars, but only publishing what is relevant and has longevity. “We also benchmark the changes that are made on online learning platforms, so we can offer our students an experience that is unique and truly fulfilling on their educational journey,” says Lisa.
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