Category: Optimization

Categories
Growth Optimization

The Value of Fresh Thinking

For marketing-driven companies the value of fresh thinking can be enormous. There are innumerable examples of once-mighty brands that lost their way (and profitability) though complacency. McDonald’s was once considered an unhealthy fast-food choice and was exposed in the 2004 Super Size Me documentary. Harley-Davidson Motorcycle almost went bankrupt in 1985 due to product quality issues.  Both companies infused fresh thinking into their companies and turned around their businesses with new/better products and refreshed branding to support.

Those are just two examples from the mega-brand world, where in theory the management talent is top-notch and resources plentiful.  But if they could lose their way, what about the much larger universe of small and medium sized businesses?  While some are surely more agile and innovative compared to large corporations, others are challenged by talent and resource constraints.

For newer companies that rely on digital and direct response channels there tends to be a recurring theme: The founders start with a great idea and rightly focus intensely on go-to-market activities, with the primary goal of generating growth. A top priority is to establish a compelling brand identity, from which marketing campaigns are developed to generate leads and eventually new customers. Execution is sometimes handled internally, but frequently outsourced to agencies to leverage their resources and expertise. Everyone is heads-down trying to keep the train on the tracks and generate growth – resources are limited, and no one has the time to take a step back and identify opportunities for improvement.

In our work with such companies we’ve observed some areas where fresh thinking can really make a difference:

Branding/Messaging

Considerable work may have been put into branding and messaging during the launch of the business – but does it still resonate?  For example, perhaps the target customer base is materially different than the original expectation.  Or maybe new products appeal to customer segments that were not anticipated at the onset.  And after the initial period of high growth, what has the company learned about itself that is important to its overall brand identity?

While some companies may have had focus on these important dynamics throughout periods of high growth and adjusted accordingly, others may have had less focus and evolved to a place where their branding and messaging is stale and ineffective.  A brand/messaging audit can go a long ways to identifying gaps and strategies to resolve.  

Analytics

Every company has a multitude of data associated with its digital and direct marketing efforts and internal lead funnel, and the most successful ones consider that data to be an extremely valuable asset. They consistently develop reporting and analytics that generate insights, from which actions can be taken to increase marketing effectiveness.

For example, while a company may know the customer acquisition cost (CAC) of the pay-per-click search channel, do they know the difference between Brand and Non Brand search terms? Or within Non Brand, the CAC of the different ad groups?  It’s possible that the CAC of some ad groups might be incredibly high, and that money could be better spent in other channels.  Or what about after leads are acquired?  As we’ve written before, it’s critical that marketers analyze internal lead flow to identify opportunities to improve conversion rates and lower CAC.

But many companies do not leverage their marketing and lead funnel data effectively. Sometimes it’s not easily accessible. Even if it is, they may not have the right resources on their team to dig in and unlock the value their data asset holds.

Marketing Execution

In many cases companies start by outsourcing their digital marketing work to an agency – it’s a smart move when a company wants to get into market quickly and leverage the expertise, resources and infrastructure an agency can offer.  But over time some issues can emerge.  For example…

Does the scope of work agreed upon at the outset of the relationship still make sense for the business now?  Or does it need to be amended in terms of services, resources and cost?

Is the company effectively managing the relationship? This dynamic is incredibly important on two dimensions: First, the company needs to be sure the agency is delivering the agreed upon work with expected quality and timeliness. Second, the agency needs a strong internal partner to ensure that direction and priorities are clear and that they receive the support they need to be successful. 

Or does it make sense to insource some of the work, especially once one or more channels have grown and demonstrated their importance to the business?  Many companies find that having an internal resource focusing 100% of their time on marketing can yield big dividends compared to having the work done by an agency, where resources are typically responsible for multiple clients and may not have enough time to really dig in. 

These are just a couple of examples of where fresh thinking can make a big impact on marketing performance.  What examples do you have?

Categories
Optimization

Don’t Forget About Your Internal Lead Funnel!

In many organizations the work of marketing stops after a lead is generated. Money has been invested to generate responses and marketers have a clear understanding of their Cost Per Clicks and Cost Per Leads.  Eventually, assuming attribution is properly set up, they will know their Customer Acquisition Cost (CAC), and can optimize their multi-channel marketing mix accordingly.

But frequently marketers do not have a detailed understanding of exactly what happens to their leads after they are generated – how the proverbial “sausage” is made “down funnel” in their company’s sales operation.  Without such knowledge marketers are unable to optimize their marketing efforts and maximize ROI.  

For example, one of our clients called leads after they were generated – but our analysis found three distinct marketing segments of leads that were being called only once or not at all.  After it was determined there was no reasonable justification for this unusual approach, the leads then received the normal contact strategy, which generated $3 million incremental revenue for the client. All it took was some curiosity and post-lead analysis – talk about some low hanging fruit!

Every marketer should want to have a deep understanding of down-funnel metrics at the marketing segment level – and the corresponding ability to recommend changes to improve performance.  Better down-funnel performance decreases CAC and improves ROI – which creates opportunities for marketers to expand their efforts and drive more growth.

But there are many reasons for why marketers typically don’t focus much down funnel. Maybe they are too busy – or simply consider it someone else’s job.  Perhaps the sales and operations teams discourage them from poking around their business.  It’s also possible the data and reporting doesn’t exist at the marketing segment level.

Whatever the reason(s), it’s the job of the Executive Leadership team to remove those barriers and empower marketers to fully optimize their marketing spends and drive growth. 

What are you doing to ensure that leads are optimized throughout the funnel?  What approaches have been the most successful?

Categories
Growth Optimization

The Value of Customer Lifetime Value

How much can you afford to spend to acquire a new customer?  It all depends on how much value a new customer generates for your organization.  Some companies have very expensive products that yield sizable profits, so they can afford to spend tens-of-thousands of dollars to acquire a new customer; others may be on the opposite end of the spectrum and can’t pay much at all.

The best practice is to start by measuring the Customer Lifetime Value (CLV) of your customers.  Simply put, it’s the amount of Profit (Revenues – Operating Expenses) you expect to earn during the course of your relationship with a customer – from the first purchase to the last.  (More sophisticated companies also include a timing element of when that profit occurs).  When CLV is clearly understood, marketers can then set Customer Acquisition Cost (CAC) goals that will provide an acceptable return on investment (ROI) to the company.

Let’s start by looking at Revenue. So you acquire a new customer and then what happens?   The answer varies widely based on business model – here are a couple of examples for illustrative purposes:

  • A new customer purchases 50 hours of tutoring services for their child.  How many times will they renew, if at all?  Is there a younger sibling that will need tutoring in a year or two?  Will they refer other families to the company?  (This referral dynamic was incredibly valuable to one of our clients for whom we built a CLV model – 30% of all new customers eventually referred another family, who in turn would purchase, renew, and make referrals of their own).     
  • A subscription service (e.g. streaming audio or identity protection) acquires a new customer.  For how many months will they pay the monthly fee before they cancel, if they cancel at all? Can they be upsold or cross-sold during the relationship?

Of course the activity of one single customer doesn’t really matter.  What’s important is the aggregation of customers to get a big-picture view of average customer revenue.

Operating Expenses are the second important component of CLV – what does it cost to actually deliver the product or service?  Depending on the business model this can include many different factors, ranging from manufacturing to distribution to servicing costs.  Like with revenue, what’s important is the average customer operating expense.

Bringing it all together, the CLV of an average customer is the average revenue minus the average operating expense.

Implications for Marketers

The first and most obvious implication is that CLV, along with guidance from company leadership, will determine Customer Acquisition Cost goals.  For example, let’s consider two companies, each with $1,000 customer CLV.  One company is highly focused on profitability, so sets a CAC target well below the CLV – maybe $350 – and earns a healthy return on its marketing investment.  The other company, however, is highly focused on growth, so is willing to pay a lot more – maybe even up to $1,000 and simply break even.  We’ve worked with both types of companies – the key is to ensure that both customer CLV and company goals are clear.   

The more nuanced implication is at the segment level, where CLV may vary widely. For example, you might find that younger customers have significantly higher (or lower) CLV compared to older ones. Or you might find differences based on acquisition channel – maybe digital generates a very different customer compared to traditional channels.  You just don’t know until you look at the data.  But if you can find meaningful differences (upon which you can execute), then you can optimize your marketing by setting CAC goals at the segment level.

Does your company have a solid understanding of CLV?  How do you use it in your role?