One of the most difficult things a business owner faces is the budgeting and accounting aspect of their business. Many of us rely on our CPAs to deliver the “news” annually, semi-annually, quarterly, or monthly, depending on how numbers-averse we are. But is this really the wisest way to do things?
The thought of getting into the numbers when it comes to marketing may overwhelm you quickly, but the truth is: you can’t create a good marketing plan without knowing a few key metrics. While tracking down these numbers might never be “fun” for you, if you can reframe the process and look at it as a treasure hunt, you can find gold. Here are the metrics all business owners should know.
Getting Down to Brass Tacks
Cost of a sale is one of the first things you’ll need to know. For the most part, you control the costs of a sale. Knowing your current cost is essential to determining return on investment (ROI). And once you know it, you’ll be able to make better-informed decisions from first touch (prospecting), through the process of conversion, and through the final sale or lack thereof (close).
You can go about figuring the cost of a sale out in one of two ways: calculate the average or calculate for individual products and services. Getting a feel for your overall business can easily be done with an average, but if you need to find out which product or service has the best profit margin, you might want to do some individual calculations. Ultimately, it’s up to you to decide which one will give you the information you need.
Number of Prospects and Number of Leads in a given time frame are two easy (and important) numbers to figure out and track. (For general purposes, a prospect is usually defined as someone who fits a set of common characteristics shared by your best customers, while a “lead” is a prospect that has identified themselves as being specifically interested in your products or services.)
You should always keep track of these numbers so you can gauge the cost of your marketing and sales activity. Knowing how many prospects you began with and how many became qualified leads is also a must in order to calculate our next metric.
Conversion rate gets confused with close rate all the time, but it’s different. A conversion is what happens when a prospect steps up in some measurable way and says, “Yes, tell me more” to some kind of marketing message or initial call to action. It’s these people or companies that should be placed into your company sales process.
Close rate is simply how many leads became actual sales (revenue into your business) within a given time frame. You can find keen insights as you further segment your close rate by individual products, services, or salespeople, to get a very good understanding of who or what is performing well for you.
Revenue is a number that should never be confused with profit. Profits are considered after everything is accounted for and the bills are paid. Profit is the number that’s left, which can even be a negative number if it is costing you more to produce and sell your products or services than you are bringing in from your sales.
But revenue is the total amount of money that has been brought into your company, and this is the amount that you use to gauge your overall marketing efforts. Expenses should be calculated, of course, but they need to be expenses that are associated with the marketing process.
There you have it: The key metrics you need to know. Not as bad as you thought, was it? Good. With these numbers, you can create your own treasure map to success. So revisit them regularly and empower yourself to make better decisions!