Kelly Rice [00:00:00]:
Basically, when you take the time to track your marketing metrics, you can find the red flags. You can make tweaks, you can improve your marketing, and ultimately, this will help your business grow because you have the analytical data to support things that are working as well as things that are not working. Hey there. You're listening to the Priority Pursuit podcast, a podcast dedicated to helping small business owners and leaders define, maintain, and pursue both their personal and business priorities so they can build lives and businesses they love. I am your host, Kelly Rice, and.
Kelly Rice [00:00:35]:
Today I have a question for you.
Kelly Rice [00:00:37]:
And I have a feeling that many of you won't want to really answer this, but the question is, are you tracking and measuring the results of your marketing efforts?
Kelly Rice [00:00:46]:
And if you are, wonderful.
Kelly Rice [00:00:48]:
However, as someone who has been working with small businesses for more than two decades, I can tell you that most small businesses, even the ones who prioritize having an effective marketing strategy, fail to complete this critical step of tracking and assessing their marketing performance. And actually, this is a problem, because.
Kelly Rice [00:01:06]:
If you want your marketing to help.
Kelly Rice [00:01:09]:
Take your business to the next level, you need to know what's working and what isn't. So you can invest your resources wisely, you can make adjustments accordingly and ultimately experience the business growth that you deserve. So in this episode, I'm going to throw a lot of marketing jargon at you, and it might feel overwhelming, but the fact of the matter is that you need to keep a close eye on these numbers or have someone like a marketing agency or a fractional CMO do it for you. And also, I know that this is a lot of information to remember. While you can absolutely take notes, we also will be sure to include a link in this episode's coinciding blog post in the show notes, which will include definitions for most of the metrics that we're going to talk about, plus a few more that might be helpful. Okay, if you guys are ready, we're going to talk numbers. Hey, I heard all of those groans. We're not going to groan today.
Kelly Rice [00:02:05]:
We're going to do this together. So the first and foremost, the first thing that you need to do is to be sure that you're tracking your revenue and profitability metrics. This simply includes your gross revenue and your net profit and your marketing expense ratio. So if you're using something like Quickbooks or a similar accounting system, or you work with a bookkeeper, you should easily be able to find these numbers in the profit and loss statement. And as a quick note, I'm really glad we're having this conversation at the beginning of the year. Because in theory, your numbers from last year should be finalized so that you can easily look at your profit and loss statement from last year and get a good handle on many of the metrics that we're going to discuss in this episode. So, okay, let's get back to the revenue and profitability metrics. So first, your gross revenue is the total number that your business brought in over a year, over a quarter, or whatever time period that you care to assess.
Kelly Rice [00:03:06]:
And at Treefrog, we conduct at least quarterly reviews for both our clients and our agency just to give you a heads up. But it's also great to go back and look on a monthly basis and compare it to the month prior or a quarterly or whatever it is doing. But gross revenue is just the total number that your business brought in over.
Kelly Rice [00:03:27]:
A set amount of time.
Kelly Rice [00:03:29]:
Then your net revenue is the total your business has earned after all of your expenses have been deducted, like payroll, your materials, your supplies, software, rent for office space, taxes, or whatever other business expenses that you've acquired. So basically, this is what your business has left at the end of whatever time period left over. So gross is the total amount, net is the amount that's left after you take out your expenses. So while your accountant and the IRS certainly want to know your gross revenue and your net profit, as a business leader, you also need to know your marketing expense ratio, which is simply the total marketing expense percentage in relation to your gross revenue. So in other words, review your profit and loss statement, which should include an itemized number for marketing and advertising expenses. Then divide that number by your gross revenue to determine the ratio or the percentage that you're investing into your marketing. Now, just to give you a frame of reference for this number. So, according to the US Small Business Administration, small businesses wanting to see consistent growth should plan to spend between seven and 8% of their revenue on marketing.
Kelly Rice [00:04:53]:
And larger businesses, which for sake of this conversation, are businesses that make between 5 million and $50 million a year, should invest at least 10% of their revenue into marketing. So, as you calculate your marketing expense ratio, I want to encourage you to keep this data in mind. If your ratio is lower than these numbers, you may not be investing enough into your marketing to see true business growth. And if your ratio is higher, you may not be spending your marketing dollars wisely. So again, these are big picture numbers and we're going to get into a little more nitty gritty numbers in a moment. But it is so important for you to know your revenue and profitability metrics so that you can get a big picture view of the overall health of your business and your marketing efforts. Right, because again, we don't want to not be spending enough to grow and we don't want to be spending too much that we're not being effective. So next, you're going to want to assess your customer metrics in relation to your marketing efforts, which include your customer acquisition cost and your customer lifetime value.
Kelly Rice [00:06:10]:
So now determining these numbers is going to require a little math. But if you have your profit and loss sheet in front of you and you know how many customers you've had over a period that you're wanting to assess, you should be able to determine these numbers fairly easily. So for the sake of this conversation, we're going to look at customer metrics from an annual perspective.
Kelly Rice [00:06:33]:
But please know that again, you can.
Kelly Rice [00:06:35]:
Absolutely adjust this time frame, like to a month, to a quarter, to a campaign period, or whatever other time period makes the most sense for you as you look at your own numbers. So first, your customer acquisition cost or your CAC. Some people call it a CAC, you can call it whatever you want, is.
Kelly Rice [00:06:52]:
Simply how much it cost to acquire a new customer.
Kelly Rice [00:06:57]:
So to calculate this, you need to divide whatever you spent on marketing over the course of the year, month, or whatever you're tracking by the number of.
Kelly Rice [00:07:08]:
New customers you acquired in that same time period.
Kelly Rice [00:07:12]:
So for easy math purposes, let's say that you spent $100,000 on marketing and you served 20,000 new customers this year. That would make your CAC or your.
Kelly Rice [00:07:24]:
Customer acquisition cost $5.
Kelly Rice [00:07:28]:
So that means it cost you $5.
Kelly Rice [00:07:32]:
To gain that new customer, right?
Kelly Rice [00:07:35]:
So please note that this number is going to vary quite drastically from small business to small business. So, for example, a commercial law firm is likely only going to take a handful of large, time consuming clients on retainer, meaning the firm will really only have a few clients, but those few clients will make large investments. So the law firm will likely have a pretty high CAC. However, an online boutique may have thousands of customers who just buy an item or two, and the result, their CAC will be much lower. So there isn't necessarily a right or wrong answer when you calculate your customer acquisition cost.
Kelly Rice [00:08:17]:
However, this is an important number to know because it can help you determine.
Kelly Rice [00:08:24]:
If your marketing investments are delivering those results you need. So, for example, if the boutique we discussed had a CAC of $50 and their average customer spending is only $30, there's obviously some kind of marketing problem that needs to be addressed because they're spending more on acquiring a customer than what that customer actually spends. So in addition to determining how much money it takes to gain a new customer, it's also important to determine the customer lifetime value so that you have an idea of how much revenue each customer will generate for your business over time.
Kelly Rice [00:09:01]:
So your CLTV is simply an estimate.
Kelly Rice [00:09:05]:
Of the total revenue your business can expect from a single customer. So to calculate this, you simply need to multiply the average purchase value, which.
Kelly Rice [00:09:16]:
Is like the average amount of money.
Kelly Rice [00:09:18]:
A customer spends in a single transaction.
Kelly Rice [00:09:21]:
You need to multiply that by the.
Kelly Rice [00:09:23]:
Purchase frequency, which is how often the customer could potentially make a purchase, and.
Kelly Rice [00:09:29]:
Then by the customer lifespan, which is.
Kelly Rice [00:09:33]:
The average number of years the customer could continue to make purchases with you. So I know that was a lot.
Kelly Rice [00:09:40]:
So here's an example. Let's say that you're an auto detailer.
Kelly Rice [00:09:46]:
And the most popular package you sell is $500. And most of your customers bring in their vehicles to you about twice a year, and you estimate that they will continue patronizing your business for ten years. So when you multiply these numbers, you can conclude that your customer lifetime value.
Kelly Rice [00:10:06]:
Of your average customer is $10,000.
Kelly Rice [00:10:09]:
And it's important to know both your customer acquisition cost, how much it cost you to get that customer, and your customer lifetime value, what they're actually worth to you in the long run, so that you can determine how much money you need to spend or you're actually.
Kelly Rice [00:10:25]:
Willing to spend to gain a customer.
Kelly Rice [00:10:27]:
That will return to you again and again. For example, let's pretend that the auto detailers cost their CAC is $25. Literally, you would be happy as a business leader to spend $25 in order to make $1,000 every year over the next ten years, right? So that's how you should be addressing.
Kelly Rice [00:10:49]:
And looking at these numbers.
Kelly Rice [00:10:52]:
Okay, so far we've discussed some pretty big picture metrics that you need to know for the sake of revenue and profitability as a whole. And I hope that you guys are all still with me. Right now, we need to get into more marketing specific numbers and discuss growth and marketing metrics you should be tracking, including your lead conversion rate and your return on advertising spend. So to measure the success of your marketing efforts, you need to know your lead conversion rate, which is just the percentage of leads that become paying customers. Basically, you need to divide the number of paying customers that you have by the number of leads you received. So for example, if you have 1000 leads and 100 of them purchase from you, your lead conversion rate would be 10%.
Kelly Rice [00:11:38]:
Makes sense. So now how you determine the total.
Kelly Rice [00:11:43]:
Number of leads you have actually depends on your goals. So, for example, if you host a webinar in an effort to sell your new online course, your number of leads would be the number of people who.
Kelly Rice [00:11:54]:
Attend or watched the webinar.
Kelly Rice [00:11:57]:
And if you do consultations.
Kelly Rice [00:12:01]:
Before your.
Kelly Rice [00:12:02]:
Clients actually invest in services, kind of like what we do for the agency, you could calculate your leads by the number of people who scheduled a consultation with you versus the number of people that actually signed a contract, right? So every small business's purchase process looks a little bit different depending on their offerings. But it is important to know your lead conversion rate so that you can both make projections for your business and also make adjustments if necessary. So here's another example. If very few leads are turning into paying customers, there's likely either a marketing or a customer service issue of some kind. So in addition to your lead conversion rate, you also need to know your return on advertising spend. And then this number evaluates the effectiveness of advertising campaigns, whether they're annual or like a campaign by campaign basis. And they do this by comparing the.
Kelly Rice [00:13:02]:
Revenue generated to the amount spent.
Kelly Rice [00:13:06]:
I know this sounds very similar to the marketing and expense ratio, but your marketing and expense ratio is an overview of all of your marketing spending.
Kelly Rice [00:13:14]:
While your return on advertising spend tells.
Kelly Rice [00:13:18]:
You how much revenue you generated for every dollar spent on marketing. And you can calculate your annual return on advertising spent. But more often than not, you're going to use this metric to calculate the.
Kelly Rice [00:13:32]:
Revenue generated for a specific campaign or.
Kelly Rice [00:13:37]:
For marketing efforts that are put towards like a specific product or service, as opposed to looking at it on an annual basis. So, for example, let's say that you own a plumbing company that wants to push water softeners. In Q three, you spend $10,000 specifically marketing your water softener services, and you generate $50,000 in water softener sales. When you divide your revenue, the 50,000 by your advertising budget, 10,000, you can conclude that for every dollar spent on marketing, you were able to generate $5 in sales. So that's why this return on advertising spend is so important. And it's just a little bit different than understanding your marketing expense ratio.
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Kelly Rice [00:15:07]:
Many small businesses don't have an effective marketing strategy, and because of this, they try one tactic after another without seeing results. This not only prevents consistent business growth, it makes managing marketing efforts more difficult.
Kelly Rice [00:15:20]:
Than it should be.
Kelly Rice [00:15:20]:
As a marketing agency for small businesses, we understand how frustrating it can be when hard work doesn't deliver the results that you want. Because of this, Treefrog has developed a proven four step marketing system that will help any small business grow on our website. You can also schedule a 30 minutes discovery call to discuss working with Treefrog to build a marketing strategy that will allow your small business to finally see the growth you've been working so hard to achieve.
Kelly Rice [00:15:45]:
There's just a few more things that we really need to get through, so your lead conversion rate and your return on advertising spend are great tools to help you see the health of your marketing as a whole.
Kelly Rice [00:15:56]:
But I now want to quickly kind.
Kelly Rice [00:15:59]:
Of get into the marketing metrics that are important to track on a tool by tool basis. So, for example, on your website, you want to be able to track these things. The total number of visitors your site receives over a given time period. And again, you can determine whatever that time period is for you. For your assessments, the number of new versus returning visitors your site's bounce rate, which measures the percentage of visitors who leave your site after viewing only one page. But it's important to note that depending on what your marketing campaign is, this bounce rate can vary dramatically. So if you're sending them directly to a product to purchase, and they purchase it great, you're going to have multiple pages because they have to go through that site. So your bounce rate is going to be low.
Kelly Rice [00:16:52]:
But if you're sending them to download an opt in, that may be the only page that they go to. And then you might have a higher bounce rate because they're really not going anywhere else on your website because they got the thing that they wanted. So kind of pay attention to that. So again, you need to track your site's bounce rate, especially during campaigns. You also want to track your site's most popular pages and your organic search rankings, meaning where your website ranks on Google for your desired keywords. And if you have Google Analytics set up for your website, you can access almost all of this information with just a few clicks via your Google Analytics account. Or if you have some kind of program that you bring it in to assess all of your numbers. This is not stuff that you should have to spend a ton of time on because if you have Google Analytics on your site, it's already there.
Kelly Rice [00:17:43]:
If you don't have Google Analytics on.
Kelly Rice [00:17:45]:
Your site, get it on there.
Kelly Rice [00:17:47]:
There's a whole bunch of tutorials out there telling you how to actually do that. But Google Analytics then will track all.
Kelly Rice [00:17:52]:
Of these numbers for you so that.
Kelly Rice [00:17:54]:
You can easily find. So, but when it comes to email, here are the things that we need you to track. First is your average open rate. Second is average click through rate, which is basically the percentage of recipients who click on a link within your email. Third is your conversion rate, which is the percentage of recipients who perform the desired action, like making a purchase or doing whatever you're asking them to do from your email onto your website. And then fourth is your unsubscribe rate. So we need to watch your unsubscribe rate because if you have people jump and ship a lot, then you're not really giving them the information that they need that they're wanting from email. Maybe it's too much, maybe it's not enough.
Kelly Rice [00:18:39]:
Maybe they don't find value in it. Maybe you're spamming them with information that they don't really care about. So the unsubscribe rate gives you a lot of insights as to what you could be doing better or differently within your email marketing. And then the last is your list growth rate.
Kelly Rice [00:18:54]:
So are people joining your list?
Kelly Rice [00:18:58]:
Are they wanting your opt ins? Do they want your free discounts? All of these types of things. You need to look at how quickly and how much your list is growing. And then also on the reverse of that, looking about how much it is shrinking based on unsubscribes. So all of this information should be easily accessible through whatever email marketing systems you're using. And if you're not using email marketing, you should be using email marketing because it's one of the most effective marketing platforms out. So for example, the one that we use here at Treefrog is mailchimp and we use it for both our clients and ourselves. So we can easily get this information and track it every single time that we send out an email. But when it comes to content marketing, these are the things that you should be tracking your page views, your average.
Kelly Rice [00:19:51]:
Time spent on a page, and then.
Kelly Rice [00:19:53]:
Any engagement rates such as likes, comments or shares that happen with your content.
Kelly Rice [00:19:59]:
So both Google Analytics and your social.
Kelly Rice [00:20:02]:
Media platforms should be able to give.
Kelly Rice [00:20:04]:
You all of this data.
Kelly Rice [00:20:06]:
Now, for social media, it's important to document your follower count and growth, the engagement rate, your click through rate, and the website traffic generated from your social media. And again, all of this information can be found in Google Analytics or your social media platforms as well. And then for paid media, which includes like social media, paid ads, or Google Ads, you should be tracking these five things. Your return on your ad spend, which we discussed already in this episode. Your click through rate, your cost per click, and then also your ad impressions. And then chances are whatever ad platform that you're using, they will make this information readily available. But they also give you tons of other information. But these are literally the five things that you absolutely need to be paying attention to for your paid media.
Kelly Rice [00:21:02]:
Okay, now, I know that I just threw a ton of information and a lot of jargon and a lot of acronyms and a lot of things to you in this episode. And like I mentioned before, if you'd like a list of everything we discussed with definitions and math equations and writing, visit the link in the show notes to find this episode's coinciding blog post, which details every metric we covered, plus a few more. So while we wanted to keep this episode as concise and helpful as possible, the blog post details each and every metric we keep track of for our flywheel marketing and fractional CMO clients. So if you've made it this far with me, congratulations. I'm so proud of you. But as a marketing agency for small businesses, the Treefrog team and I are regularly asked questions like what is a good click through rate? What should my cost per click be?
Kelly Rice [00:21:55]:
And is my insert whatever metric that you want to talk about good?
Kelly Rice [00:22:01]:
And the answer to all of these questions is, honestly, it depends. In fact, it depends on several things. First, it depends on whether you have a high or low ticket offer. And this isn't always the case. But in general, if your small business sells expensive products or services, you'll have fewer buyers and have to pay more per lead. But that's okay, because with a higher ticket offer, you likely don't need that.
Kelly Rice [00:22:26]:
Many more customers to be profitable.
Kelly Rice [00:22:28]:
And the metrics we discuss are also going to be very pretty drastic from industry to industry. So, for example, the average email click through rate for a boutique is likely going to be much different than that of like a veterinarian or a manufacturing company.
Kelly Rice [00:22:47]:
Right?
Kelly Rice [00:22:48]:
So keeping this in mind as you assess your marketing efforts, I really want to encourage you to do a little googling in terms of what these numbers tend to look like based on your specific industry, as this will help you better determine how well your marketing efforts are performing. So while I certainly want to encourage you to determine each and every one of these metrics we discussed, what do you kind of do with this once you have it right, like how many of us have developed spreadsheets and we're like, okay, we're going to track all these numbers and then we have no idea how to analyze it or what we need to do with it. Right. But again, you can get a full list of all the stuff that we've talked about in the blog post with the link in the show notes. But the things that I really want you to take away today is that, first and foremost, record these numbers. This way you can look back at it on a regular basis and make comparisons like year after year, or quarter after quarter, or campaign after campaign, or whatever time increment that makes the most sense based for your business and your goals. And then with this data recorded, you'll be able to assess whether or not your marketing is improving and determine whether or not the changes that you're making are actually working. Next, I want to encourage you to look through each of these numbers and compare them to industry benchmarks and address anything that isn't performing well.
Kelly Rice [00:24:10]:
For example, you might discover that your email open rate is low compared to others in the industry. If that's the case, maybe your subject lines aren't resonating with your audience. Or you might find that your social media ads aren't performing well, which might suggest that it's time to start a b testing your ad graphics or your copy. Basically, when you take the time to track your marketing metrics, you can find the red flags, you can make tweaks, you can improve your marketing, and ultimately.
Kelly Rice [00:24:38]:
This will help your business grow because.
Kelly Rice [00:24:41]:
You have the analytical data to support things that are working as well as things that are not working. So before we wrap up this episode, I do want to acknowledge the fact that tracking these metrics, let alone adjusting.
Kelly Rice [00:24:55]:
Your marketing, takes quite a bit of time. And I mean, it's an absolute minimum.
Kelly Rice [00:25:01]:
You want to make sure that you're running these numbers once a year and.
Kelly Rice [00:25:06]:
Again, depending on what you're doing, every.
Kelly Rice [00:25:09]:
Quarter, every month, every campaign may be necessary, depending on how much information you need. If you're trying to adjust your marketing results. And if you're trying to grow. So that said, as a small business owner or a leader, we know that your plate is likely already full. So with this in mind, I want to encourage you to do two things. The first option is to assign this task to a member of your marketing team, assuming that you have an internal team.
Kelly Rice [00:25:35]:
So often we see businesses with marketing.
Kelly Rice [00:25:40]:
Teams that do a lot. However, they don't necessarily take the time to measure their results. And this is a problem because if you want your business to grow, your marketing team needs to be tracking these metrics so they have the data to make wise marketing decisions. And the second option is to outsource these metrics. So, for example, at Treefrog, we conduct regular metric analysis and reviews for all of our flywheel marketing and fractional CMO clients. And it depends again on their goals, on their businesses, on their campaigns, of how often we actually go through and look at the metrics and provide the reviews. But we run reports, we record these metrics, and we present the results along with the improvement suggestions, if there are some, to our clients. This way, the busy business owners and leaders we work with have the data that they need to make informed decisions, and our team has the data we need to improve or tweak or do whatever we need to do to our clients marketing efforts.
Kelly Rice [00:26:46]:
So if you're interested in learning more about our flywheel marketing or fractional CMO services, please visit treefrogmarketing.com or check out the link in the show notes. But regardless of who records your metrics, please remember that these numbers matter. Because if you want your marketing to be successful, you have to take the time to do these. And we know that there's so many things, there's so many things that you're doing. And I want to just express that I know that we're adding more to your plate, especially as a small business owner going, oh my gosh, now I need to track all of these things, but you need to do it so that you can invest your resources wisely, you can make adjustments accordingly, and ultimately you can experience the business growth you deserve. So in case that's all the math that you want for today, thank you for tuning into another episode of the Priority Pursuit podcast. If you've enjoyed this episode, we hope you'll take a moment to share it with your small business friends to leave us a review on Apple Podcast, and that you'll join us next week for even more marketing boundary priority driven tactics that can be used to build a life in a small business that you loved.