Hi, Steve Billingham here again and today I'm going to talk about the key metrics you need to track and monitor to establish which of your marketing strategies and tactics are delivering the results you are looking for.
In my experience most professional services businesses do not measure the results of their marketing activity very well (or in many cases at all). This makes it impossible to establish which activities are delivering cost effective results and which just aren't working.
These 4 marketing measures should help you to identify the effective activities from those that are a complete waste of time.
1. Cost per lead
For each activity, what does it cost to generate an enquiry from your target market? Let's assume you invest £1,000 on a DM campaign. That campaign results in 5 enquiries. The cost per lead is 1000 divided by 5 which is £200.
2. Acquisition Cost
Say 2 of those 5 leads actually go on to become new clients. your "cost of acquisition" is 1,000 divided by 2 or £500 per client. With transactional clients, it's important that your fees cover both the acquisition cost (the £500), the cost of the advice and service you deliver and a margin for profit.
A more relevant question, however, might be... "Why you are only converting 40% of your leads!"
3. Lifetime Value of client
This is probably the most critical number to track and in my experience, most advisers don't know what this number is for their business.
The Lifetime Value of a client is simply the average revenue for a typical client multiplied by the number of years a typical client stays with you. So, if your "average" client generates, say, £2,500 in year 1 and £1,000 a year in recurring income from year 2 onwards AND your average clients remains a client for, say 10 years, The Lifetime Value of your average client would be £2,500 + (10 x £1,000) = £12,500.
4. Acceptable Acquisition Cost
This is simply the amount you are prepared to invest in order to acquire a new client. It is important to set this number with the lifetime value of your typical client as the yardstick. So, for example, you might be prepared to spend £1,500 to acquire a client who will generate £12,500 over the next 10 years.
Set a strict limit for your acceptable cost of acquisition using the Lifetime Value of the client as the benchmark, and use the Acceptable Acquisition Cost to rule out or stop those marketing activities which don't result in securing new clients at a cost which is at, or below, that figure.
These 4 measures are vital to understanding what works for you and what doesn't.