Please raise your hand if you’ve ever found yourself haunted by the fact that your competition is kicking your ass online. You know what I’m talking about… Every time you do a search on Google for the products and services your company offers you see the same competitor at the top of the list and your company is nowhere to be found!
To make matters worse, once you leave the search results page you are followed around by that same competitor’s ad on almost every website you visit. Even on Facebook, where you attempt to escape to throughout the day; it’s almost as if they are taunting you for your lack of digital prowess.
How long are you going to let this happen before you do something about it?
Hey, I’m not trying to rub salt in your wounds, I’m simply trying to motivate you to do something to improve your situation and your company’s revenue. The more the question above pisses you off, the more motivating it should be. You’ve known for some time now that you and your marketing team are struggling in this area right?
Let’s take the next few minutes to examine just how much it costs to continue to do things the same way without taking action to reverse your position and begin to dominate your dominator. To do this we’ll need to gain an understanding of a few metrics before we can calculate how much it could be costing you to allow this situation to play out each month.
Average Lifetime Value
The first metric you’ll need to understand is the average lifetime value of your customers. This is a calculation you can arrive at by looking at the average revenue you receive from your customers throughout your entire relationship as well as the average gross margin you receive for each customer. You’ll want to take into consideration the distinction between recurring customers and your single purchase customers to arrive at an overall average which reflects your true customer makeup.
For the purposes of this blog post let’s use the following numbers and assume they are a 50/50 mix between recurring and non-recurring customers:
- Average revenue per recurring customer $50,000
- Average revenue per single purchase customer $30,000
- Average gross margin for customers 50%
If your company happens to have the exact numbers listed above, your Average Lifetime Value of your customers would be $20,000. These numbers can certainly vary drastically, but you can use these numbers to understand a fairly simple formula to drop your real numbers into.
Visitor to Lead Ratio
The next thing you’ll want to understand is your visitor to lead ratio. This is basically the average number of visitors you need to get to your website to generate a lead. To provide a little perspective to this number, the industry average visitor to lead ratio is between 1% and 3%. Don’t feel too bad if your website doesn’t fall within this range as I’ve seen many, many websites which are performing far lower than 1%, and in some cases I’ve seen sites producing zero leads.
For the sake of this blog post let’s assume a visitor to lead ratio of .5% with an average of 10,000 visitors to your website each month. This would result in 50 fresh new leads for your sales team to add to your funnel each month.
Lead to Customer Ratio
The last metric we’ll look at is the number of leads it takes to generate a new customer. This could also be referred to as your closing rate. The industry average lead to conversion ratio is between 2% and 10%. This number can fluctuate greatly and is highly dependent on two main ingredients:
- The quality of the leads generated
- The quality of the sales people running the sales cycle
This, along with the hesitancy to be held accountable, has led to the age old tension between sales and marketing where we’ve heard sales complain about the quality of leads, while marketing complains about the effectiveness of the sales team.
For the sake of this post let’s forget about the subjective analysis, and simply rely on the objectivity of the numbers. Let’s assume you have a lead to customer ratio of 2%. This would result in your organization gaining one new client each month. I understand for some, this may sound like a “WIN,” but take a few minutes to calculate the costs based on the above scenarios before you happily settle for mediocrity.
Calculating the Cost of Inaction
The following numbers illustrate a comparison showcasing varying levels of digital performance:
|Example Scenario||1% visit:lead – 5% lead:close||3% visit:lead – 10% lead:close|
I’m sure you’d have to agree that the above example shows staggering differences in performance between the anemic example I ran through in this post, and what the reality can be with some focus and attention. AGAIN: the numbers I used for the above projections are low and high end industry averages so they are very realistic.
At the risk of making you too angry or causing too much pain showcasing how much revenue it’s costing you by not addressing your current digital marketing deficiencies, I’ll allow you to run the numbers to calculate the true cost of inaction for your own scenario. However, with the above model if you were to improve minimally and get to the low side of industry averages, you’ll find that NOT taking action could be costing you at least $80,000 in revenue each month!
If you’d rather use your real numbers to run through this scenario, but you’re not sure what they are, click the button below to download our “Cost of Inaction Calculation Tool.”