What's the ROI of your mother?
Last updated March 20, 2018
What's the value of marketing? How do we show the value of what we're doing? These are common questions we get from clients.
Oftentimes, we find this is a mindset issue for a lot of business owners and marketing professionals (as Gary V alludes to in the link).
Even if we're able to show results of our other accounts and the business owner still isn't buying in, there's not much we can do to convince them otherwise.
If our clients see us as a cost, we're always going to be on the losing end of that battle. But determining ROI doesn't have to be complicated.
Behold, we dispel some murkiness and also include some ways of increasing it.
Immediate ROI vs Lifetime ROI
A lot of people just look ROI at the immediate cost of something and the immediate return...
For example: I ran this Facebook ad campaign and I only got X leads from it, thus I don't see an ROI from doing Facebook Ads.
While true on the outset, this misses the bigger picture...
He or she who is able/willing to spend the most to acquire a customer wins.
We're not saying go out and spend a bunch of money on a Super Bowl ad, although you will get some nice awareness.
These days, it usually takes multiple touches to get your offer in front of someone.... you can't ask for marriage on the proverbial first date, yet that's what a lot of businesses owners are expecting from running ads or using digital marketing.
Maybe it's the immediacy of digital. Or the fact that digital means 1's and 0's... or on and off ("it's either working or it's not working").
But in marketing, human communication is more nuanced than just on or off.
That's another take away from a ROI conversation as well.
In fact, short term losses or gains mean very little. Unless you're betting against your business, the number you really care about is... customer lifetime value.
Determining Customer Lifetime Value
One of the first questions we ask is "what's a customer worth to you?" What's their LTV? That's going to determine realistically how much we can spend to actually acquire a customer.
For example, on a gym customer, do they offer monthly membership? Single paid classes? How long does a typical person stay in years? Do they have any other products and services to sell to someone?
Dentists not only clean teeth, but they offer things such teeth whitening. At the upper end up the spectrum, there's crowns, cosmetic dentistry, and even surgery.
So, the average customer lifetime value is really the only reasonable way to show ROI. Even if we stop working working with one of our clients, oftentimes the customers we helped to acquire for a business could still be making that organization revenue long after the initial acquisition... and should be credited to us.
This fact alone often gets overlooked in ROI conversations.
How can we craft a value ladder that can increase the LTV? Which leads into...
What is your value ladder?
Some smaller businesses also don't have a value ladder (yet). Thus, the only entry point to their business is what we'd call their core offer.
That means, their only (and sometimes immediate) lifetime value is their core product.
So, if that product or service price is high—like a roofer—that means it's likely we're going to spend more on campaigns to get them that win. This can be harder to prove with larger ticket items, but it is possible. Of course, the ultimate goal is conversion but people still need to be aware of you first.
Sometimes, the only way to change that is to change the way we do business. What other offers can we make to someone that can help increase their immediate customer value?
A roofer could offer gutter/leaf cleaning. If the goal is to inspect someone's roof for a replacement, an ideal entry point offer is to get on someone's roof.
You may break even (or even lose money) on that initial transaction, but some of these people will need their roofs replaced—either now or down the road. You might as well get paid for the “free” inspection you're already offering.
In the dentist example, running a Facebook ad for booking teeth cleanings is going to be a long road filled with pain. While regular check-ups are important, it's not something that someone on Facebook is going to be receptive to receiving.
However, inviting someone in for an inexpensive teeth whitening is what someone really wants—maybe target newly engaged couples ready to get married.
At that point, it's easy to upsell a cleaning, regular visits, x-rays, etc.
What about B2B?
Contrary to popular belief, Facebook may be a great choice for B2B.
Or it may be a terrible choice.
It all depends on the business, its goals, customers, and the go-to market strategy.
A better question to ask: where do your customers come from now? Are they hanging out on Facebook? Or LinkedIn?
Oftentimes, an ideal entry point for B2B is the answer to the question... "What is the most common question you get asked?"
For example: maybe it's a price catalog download in exchange for an e-mail address. (Yes, e-mail addresses can be a form of currency as well.)
Oftentimes a core offer for a B2B sale could be many thousands (or millions of dollars), made over years. That's not something you can sell over an AdWords campaign but these traffic stores can get the ball rolling in the evaluation stage.
Instead of thinking B2B or B2C... try "human to human" (H2H).
What about free?
Free is actually a tougher sell since people put exactly that value on it.
If you want someone to be a paying customer, the magic happens when they start to pay you money, even if it's just a few bucks.
A great example of an entry point offer was the 10 CDs or Tapes for $1 that Columbia House used to sell. That got someone hooked on CH's core offer: a continuity/subscription program where they'd send you the "featured" selection each month.
You give someone what they want and then upsell them on what they need.
So, what is the ROI of your mother?
Priceless, of course. You can't put a price on that kind of thing.
But, the takeaway is this: value is relative.
Just as a video game to a professional video game player (yup, there's such a thing) or a pigskin to a pro football player, these seemingly normal items could be worth millions. To others, the ROI is only the price we paid for the thing.
Done properly, marketing should get a return on investment.
Can we show you how?
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