Management of marketing performance is a complex topic. Marketing is the business function responsible for getting, keeping and growing customers. This involves making decisions about marketing strategy and developing the appropriate marketing mix. It involves management of product categories and market segments, distribution methods and selling processes. Management of marketing performance is critical to your success in business and maximizing sales revenues and profits.
Despite the importance of effective management of marketing performance, the accountability of the marketing departments and marketing efforts in many businesses is minimal. Many businesses waste a lot of money on marketing. Management of marketing performance is difficult because companies usually don’t track marketing results adequately and therefore are unable to develop relevant marketing measures or “metrics.”
Management of marketing performance is much easier if you boil marketing down to its three basic aims; attracting potential customers (lead generation), converting leads into actual customers (lead conversion) and retaining customers who purchase repeatedly (customer retention). All marketing activities are directed towards one of these objectives.
The fact that there are three variables in the process makes it tricky to develop meaningful measures. However, having only three variables means you can manage marketing performance if you develop marketing metrics relating to each of the variables. Managing marketing performance is then a matter of testing different approaches by only changing one of the variables at any one time. Managing marketing performance is basically a process of testing different methods and discovering which work best. If you only change one variable with each test you will learn something. If you change more than one variable, you won’t know which change caused any improvement or deterioration in results.
Lead generation is the process by which you attract potential customers. To accurately measure the effectiveness of your lead generation you must accurately capture and record the source of each lead. For example, when someone comes into your store, or calls on the phone, you want to ask why they came to you. The answer will be from a particular ad, or because of a recommendation from a friend, or because they were just going past and saw your sign, or any number of things.
You must record this information and analyse it frequently, to track the response rates to your advertising and to see what has the most influence on your market. You need to make it easy to record this information, or your sales people will not record it accurately. If possible, automate the process in some way, or make it part of your sales routine. For example, make sure you always provide computer generated quotes which have a field for the enquiry source, which needs to be completed. Analysis of this information will enable you to identify your results in various areas such as product offerings, communication styles, advertising media, etc.
The purpose of all this recording and analysis is to identify which ads are profitable and which are not, so that you can make more intelligent decisions about where to advertise. You will then also be able to identify your average cost per lead from each advertising source.
Lead conversion is influenced by your selling methods, pricing strategies, guarantees and warranties, financing options and credit policies, etc. Each of these variables can be tested at various points to determine optimal levels.
The two common metrics to measure in this area are the conversion rate, or number of sales compared to enquiries and the average sale value. You may also want to break these measures down to analyse results from various product categories and market segments.
Measuring your conversion rate and average sales value will help you focus on developing strategies to increase both measures. Most of the effort in attempting to increase sales is usually directed towards increasing the number of enquiries. However, if you are aware of your conversion rate and average sale value, you will often see that it is much more effective to improve your conversion rate to increase sales which means no added marketing cost is required. If your conversion rate is in the order of 4 sales from 10 enquiries, your sales revenue can be increased dramatically without any more enquiries being generated, if you can simply increase your conversion rate to 5 out of 10. Such an improvement would result in a 25% increase in sales volumes with no additional outputs.
Increasing your average sale value is also another simple way to dramatically increase sales results. You need to discover how to increase your margins on each sale. Sometimes this may be as simple as increasing your prices. Most businesses actually undervalue their worth to customers and try to compete on price alone. Adding value to your product will allow you to get out of the price wars and compete at a different level, where profit margins are healthier and customers are easier to deal with.
Another way to add value to the sale is by upselling. Learn the version of McDonald’s “Would you like fries with that,” that works in your business. What would complement any of the products or services you sell that you could add to each purchase to increase the value and profitability of the sale. When the customer has already decided to buy and has their wallet open is the best time to ask them for more.
Tests have concluded that on average, it is six times less expensive to gain sales from existing customers than to gain new customers. However, marketing to existing customers is often an overlooked area in many businesses. There are many ways to increase sales to existing customers. The hardest job in marketing is to get a new customer. Once you have done that job and have performed at a level to satisfy or exceed their expectations with their purchase, the battle to sell more is already half done. You have won the customer’s trust, which is the biggest battle in selling.
The metrics you need to measure in this area are frequency of purchase and lifetime customer value. The lifetime customer value is calculated by multiplying the average sale value by the average number of times a customer will make a purchase from you over the course of your relationship with them. This number is important in management of marketing performance because it provides the basis for determining your level of investment in marketing. When you know this number you can compare it with your cost per lead from each source to identify whether it is worth the investment.
This is how you make every dollar of your advertising budget accountable. Ultimately, you won’t have to guess when it comes to making decisions about marketing. Sound management of marketing performance will allow you to identify the best combination of advertising methods, sales methods and customer retention options to enable you to maximise your marketing effectiveness.