Calculating the True Cost of Marketing

It Really Isn't THAT Complicated!

It Really Isn't THAT Complicated!

Over a century ago, retailing pioneer John Wanamaker famously said “Half my advertising is wasted, I just don’t know which half.” The same challenge confronts most companies today.

But what if you could know exactly which of your lead sources was producing what results and calculate your marketing and sales costs to the penny on every closed deal? That dream is a reality today, even in bricks-and-mortar companies like home improvement contractors.

Every business owner knows they must invest in marketing but few know how or where to put their money. Even some companies with more evolved sales and marketing cultures often have difficulty tracking their ad dollars directly to specific sales. This is a shame because in our age of powerful software and the Internet, the answers are right there for the asking.

While every business is different, in today’s article I’m going to share a system from the home improvement industry which allows you to budget and track every dollar of your marketing and sale expenditures. After all, you know each sales cost you something. Why not know exactly how much and budget that into your process?

As I have written previously here and in my book The Greatest Job You Never Thought Of, I once worked for a great home improvement company that sent me as many as 18 qualified leads per week to run. They advertised on television and radio, in the newspaper and at home shows. They tracked the sources and costs of every lead and told us that, on average, their cost per lead was over $500. Expensive yes, but so was their product. Even at that cost they were able to operate profitably.

I don’t know what tracking system that company was using back then but today I have recommended LeadPerfection to another home improvement company I am working with. Used correctly, LeadPerfection tracks every lead source and sub-source (source: television – sub-source: 30-second spots on Channel 4). It then follows the lead through the sales process and tells you what your demo/sit percentage is (by salesperson and/or source), closing percentage, gross revenue per lead issued, etc. This is pretty standard CRM data but without it you’re just shooting in the dark.

Turn Your Marketing Budget on Its Head
Recently I came across a company that turns the lead cost tracking and budgeting process on its head. They tell you ahead of time what each lead is going to cost you! And they’re adding a new service that will even work the leads for you on the phone, set and confirm the appointments, issue the leads to your sales team, gather the results and report the whole deal back to you – all for a fixed price per lead and demo.

In speaking to Ed Weisberg of Keyword Connects about their lead generation services for my home improvement client, I also learned about their new lead management service which allows contractors to outsource their entire marketing and lead management process. While the new management services are just being introduced, I believe that Keyword Connects’ model is a worthy study for any business owner.

How It Works
Here it is in a nutshell. Keyword Connects builds branded landing pages for home improvement companies and then uses a variety of online methods, including PPC (paid placement) and SEO (search engine optimization) to get those pages to rank high on Google, Yahoo and Bing for local searches. If you were to search for Replacement Windows, Texarkana, Arkansas into Google for example, one of the top results you might find would be for one of KC’s clients. If you were to click on the link for KC’s client you would go to the branded landing page KC had built for them – not the client’s web site.

Why doesn’t the link point to the client’s web site? Because the odds of capturing a lead there are generally minimal (most web sites are not well designed for that purpose) and because KC can optimize all aspects of SEO on pages they create.

Other services (like ServiceMagic) offer seemingly similar services at a lower cost per lead, but there are two big differences with Keyword Connects. First off, with KC, your prospects go to a page which is branded to your company, with your logo, company name and contact information. ServiceMagic pages are branded to ServiceMagic and the customer will never have heard of you before you call them.

Secondly, Keyword Connects only sells your leads to you. Each ServiceMagic lead is sold to five or more similar companies, most of whom will contact the same prospect in response to their single request for information. This means each prospect will receive multiple calls from companies they have never heard of and almost every proposal will be part of a bidding process. Generally speaking, the first responder will have the best chance of winning the deal and systems like LeadPerfection can notify you instantly by email when a ServiceMagic lead has come in.

Your Prospect’s Engagement Experience
Once the prospect lands on your branded KC-created page, they are encouraged to either fill out a simple form or call a phone number which connects to KC’s call center. If the home improvement company is only using KC’s lead generation service, the information collected on the form is forwarded online or the phone call is hot-transferred to an operator at the client company.

If the client is also using KC’s lead management system, the KC call center operator asks the prospect a few qualifying questions, additional contact information is collected and the appointment is scheduled for the demo. Leads are assigned automatically by the system based upon individual salespeople’s skills, location and closing rate. The sales manager checks the schedule daily and juggles the assignments as he/she sees fit. Salespeople receive their leads by email and report back their results to the call center by phone after each appointment. I’d call that a nice, neat bundle of services.

Another benefit of Keyword Connects’ lead management system is that it tracks all your leads, not just the ones KC generates. Leads coming from home shows, canvassing, advertising, referrals – you name it – all go into the system and are professionally managed and tracked. Whatever your lead source and sub-source, you will know exactly how effective it is and how much it costs you to generate a sale through it.

How Much Does It Cost?
Sounds great, but what does all this wonderfulness cost? For the sake of illustration and easy arithmetic, I’m going to use some random (but reasonable) numbers to answer that question.

Let’s say that Keyword Connects charges you $100 (ranges from $85 – $200) for every qualified lead and $80 (actual price) for each completed demo. No-homes, porches, bad leads, etc. incur no lead management fee but are still charged a lead generation fee. The KC system minimizes bad leads every step of the way to avoid this problem but it still can happen. If you feel that you’re getting too many bad leads, you can opt-out of the lead generation service with thirty days notice.

Continuing the hypothetical example, in your first week you receive 10 leads @ $100 each, and are able to sit with 8 of those 10 leads. Your cost per sit/demo is now $125 ($100 divided by 80% sit rate). But you’re not finished paying Keyword Connects just yet. If you’re also using their lead management service, you’ll owe them another $80 for each completed demo. Your cost per sit/demo is now up to $205.

If your closing rate on these highly-qualified, professionally managed leads is 66% your total cost for marketing per closed deal is approximately $311. The lower your closing rate the higher your marketing cost per deal (at a 50% closing rate your marketing cost per deal goes to $410).

If your average deal size is $5,000 and your standard commission rate is 10%, you will pay an additional $500 to your salesperson. This brings your total cost to market and close a deal to $811, or just over 16%.

Many home improvement companies shoot for a gross margin of 50% or double their costs for materials and installation. Using that formula you would have paid $811 to generate $2,500 in gross profit, leaving a net of $1,689. In effect you triple your investment on each deal by receiving $2,500 in exchange for $811. As one owner put it to me “I’ll trade $1,000 for $3,000 every day of the week.”

Your Mileage May Vary
Obviously these figures are for illustration purposes only, your percentages are probably different and your mileage may vary. You may feel the 66% close rate is unreasonable or know that your average sale is much lower (or higher) than $5,000. Whatever your situation or numbers, this system not only allows you track the cost and effectiveness of your leads – it will even give you all that information ahead of time. I wonder what John Wanamaker would say about that!

Here’s another way to look at this: if you can’t turn a reasonable profit based on your marketing and sales costs per deal, something needs to change. Either you’re paying too much for ineffective advertising, you’re not doing a good job qualifying and managing your leads, your prices and/or margins are too low or your salespeople just aren’t good enough closers. A system like LeadPerfection or Keywords Connect helps you identify all those aspects but you are still the one who has to make the hard decisions about marketing, pricing and personnel.

Effective Marketing Attracts Closers
An additional benefit of this system is its ability to help you recruit and retain top-producing salespeople. Top producers love qualified lead flow. Closers want every opportunity to sit in front of prospects who are ready, willing and able to buy. And a system like Keyword Connects offers a level of transparency and information flow that allows everyone to know exactly what is going on every step of the way. Show this system to your prospective recruits and watch their eyes light up.

While Keyword Connects focuses exclusively on home improvement (God bless them for sticking to their knitting), there are similar offerings available in a wide variety of industries. Outside of pure E-Commerce models, few offer the cradle-to-grave lead generation and management features of Keyword Connects, but two or more can be cobbled together to create a similar end result.

The bottom line is that you need to take complete control of your marketing and sales processes and costs and, no matter what you’re doing now, it almost certainly can be improved.

Resources Cited In This Article:

Bob Rubertone
LeadPerfection Home Page

Keyword Connects
Ed Weisberg
Keyword Connects Home Page

If all of this sounds like a great idea but you have no idea when you’d find the time to implement it, give me a call.

Frank Felker

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Recommend0 recommendationsPublished in Compensation Plans, Contact Management, Corporate Transperency, Customer Relationship Management, Lead Distribution, Lead Generation, Marketing, Paperwork Minimization, Qualifying Prospects, Sales Management, Sales vs. Marketing, Target Marketing, The Leaderboard, Top Producers