If you're like most small business owners these days you're investing like crazy in sales and marketing so you can grow your business, right? You've got the best sales people your money can buy. You've got a killer Website, social media, email marketing, content that promotes your brand and story, software to make life easier, and more.
The reality is without these investments you'd have a really tough time finding enough qualified customers for your business. In fact, poor marketing and management decisions is the number one reason so many businesses fail. They simply don't get their product to enough customers at the right price points to make it in the long run. Of course, there a ton of other reasons small businesses lose traction or die. But sales and marketing investments tend to be very close to the top of the list of priorities if you ask most business owners.
We've all know the agony of defeat when we invest in a disaster sales rep who won't produce. We have also suffered the wrath of putting money into some pretty far-out marketing investments, like that new $50,000 website the design team said would improve results or the CRM/Marketing Automation system that will double sales, fast. (Yeah, right. Prepare for mayhem.) And then we sit back, evaluate the results as best we know how to and decide if it was good enough or not. But the science or math doesn't go much past this point. I suggest you could do a lot better in your business, drive better performance in sales and marketing, if you keep really close score.
Given all the time, talent, money and energy you put into sales and marketing, how do you feel about results right now? Are you on target or behind your goals? And if the latter, what will you invest in next to turn things around? These are the typical questions you may be asking yourself or your team may be asking you for clear direction. They want and need it! And together you vet all the possibilities for each investment, whether it's hiring a new sales rep, adding more talent to customer service or launching that new product you've been creating for so long. And then you pull the trigger to see what happens next.
So, what's the ROI on your recent sales and marketing investments this month or year-to-date? If you don't know, why not? I know we all care! I believe it's not knowing the formula. We can fix this!
Given this, I share below one formula you can use to get a baseline on where you are now and in the future you can measure against this baseline so you have constant and continual improvement in the way you perform in sales and marketing and how this impacts your bottom line.
You don't have to be a financial or math whiz to track ROI. You need the desire to know the numbers and to have the discipline to track and report everything in a way that you can easily track your ROI on sales and marketing. Simple, not easy considering the 10,000 other things on your To-do list right now.
Calculating Sales and Marketing ROI doesn't have to be terribly difficult given the right mindset, disciplines and financial talent on your team to perform the analysis. Typically, you will want to review these numbers at least monthly, if not more. You can take the formula below and apply it to the timeline you desire, whether monthly or not. I would also be happy to help you work through the sales and marketing ROI calculations.
Here's A Simple Sales & Marketing ROI Formula.
# of Leads Generated = ?
X
Conversion Rate = ?
= Total New Customers
+ Retained/Current Customers = ?
= Total Customers
X
Revenue/Customer = Total Revenue
X
Gross Margin = Gross Profit
-
Fixed Costs = Net Profit
So there you have a fairly simple way to calculate Sales and Marketing ROI. Getting the inputs that confuse non-financial types is fairly easy if you have solid bookkeeping in place that is current and accurate. Your competent accountant can probably help you figure out what your Gross Margin is so you can get to your Gross Profit in this formula.
The question is, will you use it and if so, what will you learn that could dramatically help improve your sales, marketing and business results?
I always appreciate your comments, questions and suggestions here on the Conversion Marketing Experts blog.