Let’s rewind to 2011.
I was in the midst of building an e-commerce store for a headset website, which my company was launching. At the same time, my good friend (who we’ll call Bob) was building his e-commerce business. And by this point, his company had jumped from 5 to 50 people. And his revenues had grown from a few million to almost $30 million.
I was in awe that Bob managed to grow his e-commerce business so quickly.
Bob invited me to his office so he could tell me how he did it. And what I learned during my time at Bob’s office completely transformed how I thought about marketing.
In a nutshell, here’s a high level … The key to scaling a business is understanding marketing, then figuring out how to implement it. The first thing you need to understand is the science behind marketing, and I’m not referring to beakers, Bunsen burners, and flasks.
Marketing Is 50% Science and 50% Art.
Regarding the science half, think Peter Drucker’s comment: “If you can’t measure it, you can’t improve it. Regarding the art half, think design, branding, and ideas.
To reiterate, if you don’t understand the science, you’ll fail at marketing.
Bob’s company continuously refined their marketing funnel. In fact, here’s how well they knew their metrics: For every dollar they spent on a specific campaign, they knew how many leads they would receive, how much business they would get, and even how many phone calls they would receive the next day. They knew their marketing and sales results down to a fraction of a percentage.
Tweak Ad A, and they’ll receive a 0.5% improvement.
Up until that point, I didn’t understand the science of marketing, or even know that Bob’s approach was possible. But during that meeting, I had my marketing epiphany.
Let’s look at an example:
- Let’s say you know that for every $100 you spend on marketing you will receive 10 leads. You know that each lead costs $10. ($100 / 10 leads = $10)
- For every 10 leads, you close 1 sale. So you now know that each closed sale costs you $100. ($10 x 10 leads = $100)
- Summarizing: for every closed sale, your firm makes a profit of $X.
Let’s Figure Out How X (Your Firm’s Profit) Will Change with Every $100 Spent.
Scenario 1: If I told you that $X was $90, that would be terrible. You’ve now lost $10 per sale. (You spent $100, but only made $90.)
Scenario 2: If I told you that $X was $300, that would be excellent. You now know that your firm makes $200 in profit ($300 – $100) for every $100 spent on a particular marketing campaign. If your gross margin is $50 per product sold, then you’ve just made $150. You invested $100 in advertising, and made a gross profit of $150.
Now let’s revisit Scenario 1. Why would you budget for marketing, knowing you’ve lost $10 for every $100 spent?
What if I explained that the $10 loss was on the initial sale, which was a loss leader? That would create an element of recurring revenue that provides a significant, sustainable long-term profit margin. Wouldn’t that change your opinion?
But how would you ever gather this kind of data?
To produce these types of ROI calculations, you’d need to build a proper marketing stack, which you’d need to integrate with your technology stack.
Now, the above scenario was quite simple because we were discussing only one product (SKU).
What if we multiplied it by 100 different campaigns, with 200 different product SKUs? Now we’ve built a level of complexity that requires the right machinations of marketing, technology, and reporting. They allow you to make educated decisions about what to do, when to do it, how much to invest, and how long to invest it.
We have two issues at play:
- You need to decide how to market, and who to market to.
- You need to build the marketing-technology infrastructure, so that you can make these types of decisions.
Once you’ve figured these issues out, you’re ready to go.
You’re thinking, “Okay, Sherlock, thanks for that info. But how do I make what you explained actionable?”
Marketing works better when you can refine your results, then refine them again, and then refine them one more time. The ultimate goal is to build the optimal marketing funnel with a well-understood cost per lead, closed sale, and profit margin.
Where Do You Start?
Marketing Automation Is an Excellent Place to Start.
As the name implies, this software automates marketing actions. Marketing automation allows you to automate marketing tasks, such as email, website actions, and social media. And in the end, it facilitates both the delivery and reporting of these marketing functions.
The example I provided earlier (with the $100 spent on marketing and the $300 in revenue) is a function that a marketing automation package would perform a report on.
Take a look at some software packages available on the market. But you shouldn’t just buy a marketing automation package without considering how to build your entire suite of integrated technology solutions.
I’m a Big Salesforce.com Fan.
Saleforce makes marketing automation software called Pardot. And Pardot is wholly integrated into Salesforce. You don’t have to worry about tying the two products together. Straight out of the box, they connect.
Some other excellent products are available, which are less expensive. Products like Hubspot, Infusionsoft, and Act-On are also good alternatives.
You can start your research by investigating the above products. But again, you don’t want to buy a marketing automation solution if you haven’t fully considered both the entire marketing funnel and the ways it’s going to integrate into your whole business.
Depending on the nature of your business, your salespeople will presumably be preparing proposals, so you want to tie the lead to the proposal and the customer. In addition, the customer has a lifetime value. In the absence of some connection between your accounting, sales CRM, quote tool, and marketing package, you won’t be able to gather the full lifecycle of the lead, and you won’t understand your ROI.
Here’s How Well You Need to Understand Your Marketing:
For every dollar you spend, you make $X in revenue, and $Y in gross profit. Without this information, you’re wasting marketing dollars.
Now let’s extrapolate.
You want to scale your business. You’ve decided that you’re going to spend $10,000 a month on Google PPC, Bing, Facebook ads, and so on. You know that the $10,000 you spend will result in a $200,000 increase in revenue, which will result in a $20,000 contribution towards your bottom line. Spend $10,000, make a profit of $20,000.
It’s doesn’t take a 10th Grade Calculus teacher to understand these calculations. Nevertheless, so many entrepreneurs throw money into advertising, and have no idea how the dollars will contribute to the bottom line. Conversely, I speak with many entrepreneurs who want to understand how to scale their business, but don’t understand the basics I described above.
Understand the science behind marketing, and you’re on your way to scaling your business.
Marketing Related Post #1: I wrote a post titled: The Single Most Important Business Lesson for a Startup Entrepreneur, and it is related to the same concept … understanding marketing, but, in the post, I state the following: “Nailing marketing is one of the main keys to succeeding in business”.
Marketing Related Post #2: Don’t Use the Word “Love” in Business, and 7 Other Branding Pet Peeves
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