Of the four M’s of marketing – Market, Message, Media and Math – the one that many don’t like is the math. Marketing is, at its core, applied psychology plus math; you can get the psychology side really, really right (offers, message, USP, etc.) but totally and completely miss your mark if the numbers side of the equation doesn’t add up; and since the New Year is when most people are setting goals for themselves, you MUST know the MATH side of the equation or you’ll frustrate yourself (and your staff) by constantly falling short of goals – and it’s VERY demoralizing for a leader to constantly set goals they don’t hit. Not knowing marketing “math” also makes it impossible to manage new sales reps, because you won’t be able to work backwards from their goal to tell them how many activities (calls, connections, appointments, proposals, etc.) they will need to conduct to hit their quota; worse, you won’t know if they HIT or MISSED their quota until it’s too late to do anything about it.
Example: A client calls in and wants to know if sending 50 Bad Date letters a week is “good.” I can’t say if it is “good” or not without knowing his specific goals. If he wants to add $1 million to his business and the average client is worth $2,000 a month, then JUST sending 50 Bad Date letters a week is NOT a sufficient plan. At $2,000 a month, he’ll need approximately 42 clients. If his close rate is 30%, he’ll need 142 proposals generated; if 50% of all leads generated are not qualified, not ready to buy now and don’t move to an appointment, he’ll need 284 leads per year and about 7,100 prospects to target per quarter if we assume an average 1% response rate to the campaign each time it’s sent (284 ÷ .01 is 28,400, then divide again by 4 to assume we remarket to that same group every quarter with a different type of lead generation campaign and offer). Based on HIS SPECIFIC GOAL, he would have to send out 546 Bad Date letters per week to hit $1 million in net new business that year if that’s ALL he was doing AND if his goal was to add $1 million in revenue with an average price point of $2,000.
A smarter approach would be to not only attempt to hit the million with prospecting, but also working to increase the close rate to 40% or more, raising the average spend to $3,000 per month or higher, implementing a system for fueling referrals from every new client, better follow-up to get MORE leads to buy now (60% instead of 50%), etc.
Of course, your client acquisition marketing plan should be multifaceted so we’re not only doing Bad Date letters to cold prospects, but also referral campaigns, networking events, speaking engagements, SEO optimization, canvassing, etc., with each media (another “M” of marketing) delivering its own leads and sales opportunities. The above also assumes all growth will come from NEW client acquisition, which would not be true nor very smart to depend on.
So what numbers do you need to know? Basic ones like average client value (also called lifetime value), cost per lead, cost per sale (or what you CAN afford to spend to generate a lead or a client), the average sale, ascension and churn percentage, as well as response percentages to various campaigns and sales funnel metrics like what I did above so you can work backwards from a goal to accurately identify the activities needed to hit quota. Another number many never think about: how BIG is your universe of potential clients? Far too many IT firms pick the big, wide “10 to 100” computers and call it a day, but that’s too vague and too broad to have any meaning. Further, there aren’t as many of them as you might think…
According to US Census Bureau statistics, 76% of all businesses operating are classified as “non-employers” (meaning they don’t have employees), and 89% of those businesses WITH a payroll have under 20 employees. Therefore, if you’re wanting to sell only to clients who can write you a check for $5,000 or more per month for managed services (as an example), then you have to engineer your marketing to talk ONLY to those who CAN write you that check. If that were your specific goal, you would be foolish to focus your marketing to the masses via social media, SEO, radio, TV, newspapers, etc. To get to those potential buyers in the fastest, most expedient way, you’d be smart to build a list made up of those specific prospects and market to them directly using DIRECT marketing (direct mail, telemarketing, canvassing, strategic referral and JV strategies), reducing the haystack to find these few needles. Anything else is a distraction and a huge waste of time and money because it would be marketing your services to a broader audience you don’t want to attract.
That’s not to suggest small businesses (or consumers) are bad target markets, but you will have to adjust the metrics to grow if targeting consumers or the “non-employers.” The good news regarding that market is that there are more of them and they are less likely to be in a contract like a larger organization would be. A general rule of thumb is to assume you can secure 10% of a market; therefore, if you need 100 clients to have the kind of business you want, then you need a universe of at least 1,000 to make that happen.