A key component of any marketing or advertising program is the process of identifying your Return On Investment, and gaining a better understanding of whether or not your marketing budget is being spent effectively on behalf of your business. With so many options available to market your local business or franchise, it can be easy to fall prey to the measurement mentality that is summed up best by saying “this program is working because I feel like it is” rather than digging into the actual data. One advantage of digital marketing is the ability to track KPIs and success metrics in a more precise manner than traditional programs like radio and TV allow for, especially when it comes to lead generation tactics on channels like Facebook and Google. When it comes to measuring the success and ROI of your local marketing, two metrics worth focusing on (in addition to the metrics available to you in LOCALACT) are Lead-to-Customer Percentage and Customer Lifetime Value. Calculating ROI using these metrics based on available sales and marketing data can help you gain more clarity around the overall success of your local marketing and revenue growth. It’s important to note that calculating Customer Lifetime Value also requires in-depth research and analysis, but understanding this key metric can provide a great deal of direction for how you should spend your local marketing dollars.
Let’s take a look at how you can calculate ROI this with your own data, using hypothetical metrics for CLV in the example below:
Tips for Calculating Your Local Paid Media ROI
Let’s say you have a Lead-to-Customer Percentage that equals 20% and an average Lifetime Value of a Customer of $700.
If we assume your average monthly budget for local paid advertising on Google is $800, and generates an average of 40 customer leads per month, your average Cost Per Lead would be $20 for your campaigns.
If your average lead-to-customer rate is 20%, your monthly budget would produce an average of 8 new customers per month, at an average Cost-Per-Acquisition of $100 per new customer.
To calculate your ROI using CLV = (Customer Lifetime Value – Cost Per Acquisition) / Cost Per Acquisition
For this example, your ROI equals: ($700 – $100) / $100 = ROI of 600%
It’s important to review your campaign performance using metrics like CPL, CPA and CLV over longer periods of time, rather than in smaller windows or singular months, in order to properly assess overall marketing performance. As with any business, some months may be better for you in terms of lead volume and revenue than others, based on demand for your products/services and your corresponding marketing programs. We recommend running campaigns for a minimum of 90-120 days, regardless of the channel, in order to provide enough data for you to properly determine whether or not you’re getting a positive ROI and true value for your local paid media.
If you have any questions about this formula or would like help from our team, please reach out to email@example.com and we can talk through this with you.