As SMB Investment in Digital Increases, So Does the Need for Better Performance Metrics
The average small-to-medium-sized business is contacted three-to-five times per week by a salesperson pitching some sort of marketing product or service. These salespeople have good reason to be hounding SMBs — all indications point to the fact that SMBs are finally opening their wallets to pay for online marketing.
BIA/Kelsey predicts that 2015 will be a banner year for local media expenditure on the part of small to medium businesses, with investment exceeding $50 billion. Much of this figure will be put toward online marketing in some form, including display ads, pay-per-click, online directories, social media, and local SEO.
With this investment comes more complexity in marketing metrics. From social media marketing to email marketing to search marketing, the sheer volume of new acronyms to learn is impressive. Pay-Per-Click (PPC) advertising, for example, has no fewer than 8 typical Key Performance Indicators (KPIs) to track the effectiveness of campaigns.
· Impressions – How many times an ad is shown
· Quality Score – A search engine’s calculation of ad copy relevance to keyword or query
· Clicks – How many times someone clicks on an ad
· CPC – Cost per click
· CTR – Click through rate
· CPA – Cost per acquisition
· Conversion Rate
· Total Spend
Social is also receiving considerable investment. Forrester Research recently revised its forecast of social media expenditure on the part of U.S. businesses, and is now expecting spending to top $18 billion by 2019. Social media marketing has its own set of metrics that add even more complexity. These include reach, engagement, and platform specific actions that include likes, followers, shares, and retweets.
Add in other online marketing campaign metrics and it’s easy to see how bewildering this can be to the average small business owner. This is the same business owner who, according to a multitude of surveys, is working harder, longer, and sacrificing more vacation pay than ever just to keep up with business. Knowing that their time is valuable, many online marketing products couple their campaign platforms with dashboards in order to help business owners visualize the myriad of marketing metrics. Unfortunately, without better top-level KPIs these dashboards are just adding to the noise.
Should a business owner focus more on their social media campaign’s reach or on how many likes a promoted post has gotten? Or are shares more important? Should Click-Through-Rate be the main metric of the SMB marketer, or would it be better to focus on Conversions? The answer is likely, and unfortunately, “It depends.” Each platform has unique advantages; each metric has limited scope. The question most business owners want answered is simple: “Is marketing paying off?”
With all the noise of marketing metrics, how can SMBs answer the ROI question? How can they increase the signal-to-noise ratio in their marketing metrics even as they increase their investments in online marketing? A good place to start is by focusing on one metric, above all else: Lead Acquisition Cost, or LAC. If there’s one dashboard that will tell how well marketing investments are paying off, it’s the one that shows LAC over time. There are other acronyms that aim to get at roughly the same calculation. LAC might sound a lot like Cost Per Lead (CPL) or Price Per Lead (PPL), terms used by lead generation services that have platform-specific versions of “leads.” CPL & PPL are similar. To be clear, LAC is essentially a business’s calculation and qualification of the amount paid for each lead, of any form, that a business gets.
Why is Lead Acquisition Cost so important for business owners when measuring the effectiveness of marketing investments? Because it quickly gets to the bottom line. LAC is calculated by taking the cost of all investments in lead-generating marketing and dividing that cost by the new leads acquired during a certain period of time. While ecommerce companies have long known that Customer Acquisition Cost (CAC), which is akin to LAC, is the most important marketing KPI, the average SMB wasn’t equipped until recently with the tools to calculate LAC.
Tools to help measure Lead Acquisition Cost are ones that track activity much lower in the sales and marketing funnel than the slew of platform-specific metrics generated from PPC, social or email marketing. Knowing how many times an ad is clicked is much less helpful in calculating LAC than lower funnel metrics like appointments booked, in-store traffic, and phone calls from first time callers. Knowing how many prospective customers contacted your business after seeing that same ad is much more valuable to know.
The challenge for SMBs is that many of the most popular online marketing services do not have access to lower funnel metrics that would make LAC a simple calculation. Google AdWords and Facebook don’t automatically know how many customers are calling your business as a result of an advertisement. They also don’t know how much an organization is spending on all forms of advertising. While there has been quite a bit of consolidation recently aimed at closing the loop on acquisition marketing and its effectiveness, many SMBs are reluctant to horizontally integrate their back office software with their marketing efforts. After all, do business owners really want Facebook to be their telco provider? Probably not. In the same regard, it’s unlikely that businesses will want to connect their accounting system to Google AdWords in order to calculate Lead Acquisition Cost.
On the other hand there’s been considerable growth in services like call tracking and appointment booking software over the past year, in addition to dashboard software that connects to these applications. Even old technologies like people-counting devices at retail stores are seeing an uptick and gaining new capabilities with in-store beacons. Increasing adoption of these services is empowering many business owners to get to an accurate Lead Acquisition Cost without adding a lot of complexity. For those business owners that want more accountable marketing, this is an exciting time.
As 2015 gets into gear and more businesses increase their online marketing investments, business owners that focus first on tracking Lead Acquisition Cost (and efforts to reduce it) will have a much clearer picture of how their marketing investments are paying off.
Mark Sullivan is Director of Analytics for CallRail, a call tracking service based out of Atlanta that provides services for more than 10,000 companies in the U.S. and Canada. He can be reached via Twitter at @mpsulli.