Imagine you have a business that is doing ok, sales are here and there, but you wanted to improve it. Now let’s assume your average life time value of a customer is £3,600 over a period of 3 years or £100 per month revenue. If you could “pay” a one off amount to generate that customer, what amount would you pay? Now obviously this all depends on what type of business you’re in and the profit margins but what would that be?
We realise at this stage it’s probably too vague to come to a figure so this is how we view it, it all about reverse engineering what you think you’ll receive against the cost it will take to generate it. When we work with customers they always say “If I invest an amount, I’d expect a positive ROI, and I’d invest all day long”. What they are really saying is “I want to know my numbers” and this is where we guide the process.
We’ll take a fictional business.
Sam Jones runs an accountancy business Kent UK, he charges £100pm and his average lifetime value of a customer is 5 years. The total return for those 5 years is £6,000. Sam’s business has a profit margin of 50% after all expenses and he is left with £3,000.
The questions is, from that remaining £3,000 what amount would he be prepared to use to gain a client? Sam says he would invest £500 to gain a new customers which would leave him with £2,500 in profit margin. Now that we know what Sam is prepared to invest, we can now use that figure to see if this would work.
Time to use Adwords tool to find out further figures.
Our research shows from this sample, that there are about 240 searches per month for an accountant in Kent:
Google Adwords reports 170 searches per month with each advertising click costing about £2.53 for a prospect to visit your website, bear in mind, they haven’t even enquired yet, it’s just a click. Let’s reverse engineer further.
If Sam is prepared to invest £500 then £500 / £2.53 per click will = 197 targeted prospects to his website.
Assuming his website looks credible, well designed, looks “right”, we’re sure he’ll get some enquiries. From our experience, you will never get a 100% enquiry rate from each visitor, which means we need to break the numbers down further.
Out of those 197 targeted clicks, how many do we think will enquire, whether that’s email or phone call?
50% enquiry rate will be 98 leads, which is a lot for a small accountant. 25% enquiry rate would generate 49 leads.
50% = 98 leads
25% = 24 leads
12.5% = 12 leads
6.25% = 6 leads
3.125% = 3 leads
Assuming the account was setup correctly in Google Adwords, if he was getting an enquiry rate lower than 3.125% then its most likely an issue with the website or a lack of credibility.
We’ll use 6.25% as a conservative estimate. Out of those 6 leads, 50% of them will qualify for the service which means 3 leads fit the criteria for Sam’s practice. Out of those 3 leads, 2/3 of them (2) became clients.
From the figures above Sam has in fact gained 2 customers from his original £500 investment. Originally Sam would have been happy to pay £500 for even 1 customer because the long term return made sense but as we go through the numbers and assuming Sam’s sales process was optimised, he actually converted 2 customers.
The above is a perfect scenario that will take some time to tweak but companies all over the UK and the world are doing this because they know their numbers and was prepared to invest to find out those numbers. Sam now has a system that can generate leads on tap. The next question for Sam is, “How many more clients can I handle”. Now that is a position we all want to be in.
Case Study – We set up a campaign a while back for a client of ours which gives us leads on tap. We know for the budget we assign for that campaign, we’ll generate 2-3 leads and we’ll convert 1 lead into a customer with a 2 year contract.
Contact us if you want help working out your numbers and to manage your campaign.
Michael Nguyen was a late blooming entreprenuer at the age of 20 and has been in digital marketing since 2009. In 2012 he decided to explore freelancing and started working with customers directly to help them win online. Michael believes that marketing has to be 100% accountable, transparent and has been producing exceptional results with Adwords PPC. Download the Adwords Guide which reveal the Adwords Keywords Mistake that is costing business owners money.