Blog

Knowing the value of customers

Published on
Category
ROI

Budgets, plans and return on investment or are important KPIs for business owners and marketing managers a like. Transparency of information and the understanding of processes vary greatly from business to business. So, in this piece I will explain how simply knowing the value of customers will impact every decision made within a marketing campaign.

Conversions, sales, average purchase value etc. All valuable metrics within marketing and business in general. But, not everyone takes them into consideration when undertaking a marketing campaign. When setting budgets, expectations and objectives a firm understanding of customer/purchase value is required. For example, ‘I know that the average sale on my website is £45’ or ‘I know that my average client is worth £25,000 per year to my business’ or ‘I know that our average claimant for medical negligence is worth £12,000 per case won’. The more that you know and understand about your average client/custom/purchase the better.

The word average is of course a generalisation. The more that you can drill these numbers down, the better. ‘I know that the average sale of a bar of 100g chocolate on my website at Easter is 90p. I know I make 35% profit on that product’ This is basic, but very important. This knowledge will help set budgets, understand ROI, plan campaigns more efficiently, determine your place in the marketplace, assist in the tone of voice and so on.

Audience

Audience and reach can be measured in many different ways. Impression when you’re using pay-per-click, readership in journals/press, number of listeners or viewers for radio and television and so on. Audience figures are great. But are they relevant? Are they the decision maker? Are they ultimately the people that you actually want to be targeting? Don’t get sucked in by large numbers. Understand them in greater detail and make sure that they are accurate.

Engagement Rate

You may have created an advert. The viewer has seen or heard the ad, the next step is to see if they have interacted. So, the number of views or impressions divided by the actions, gives you this rate. e.g. 200 people saw the ad, 30 actioned (clicked, called, emailed) this would have a 15% engagement rate. They are now a sales lead. Ultimately, the higher the engagement rate, the more attractive the ad has proved to be. But engagements don’t necessarily lead to sales.

Not all engagements hold the same potential. Does a click on a website hold the same potential as a phone call from an interested reader?

Engagement rate = Number of Actions (or leads) /Size of Audience x 100

Conversions

So, to carry on from the above, out of the 30 interested customers that we have, 15 place orders. Our sales conversion rate here is 50%.

Sales Conversion Rate = New clients/ Leads x 100

There are a number of different influences and variables that come in to play at this stage. Product quality, price, industry knowledge, strength of the sales person etc. Conversion success comes from having a strong sales plan and to look at that will mean going off on a real tangent! Let’s leave that there.

Customer Value – Bring It Back

Now to bring it back to the topic, customer value. Let’s continue to go through the example to show how important this is.

Audience: 200

Engagement Rate: 15%

Leads/ Actions: 30

Conversion Rate: 50%

New Clients: 15

At this stage we haven’t discussed anything remotely revenue focused. To know your average customer value accurately is invaluable. Let’s say the average customer is worth £100. The 15 new clients are worth £1,500 to the business, fantastic.

Knowing this allows us to plan and budget for future campaigns. If this campaign cost £300 to run, it’s well worth it. If it cost £1,499, probably not! To add scale to the whole scenario, there are three very important numbers to know. Engagement rate, this will vary channel to channel and platform to platform. Any good agency should be able to give you figures on this. Conversion rate. Do you know your sales success rate? If not, look back historically and put a guide on it, even a range (between 25%-35% or between 75%-77%). Then finally, average customer value.

If you have a firm understanding of all of the above, budgeting is easy. As a marketing manager you have a clear plan to hit your KPIs. As a business owner/director you know exactly where your money is going and how much it is expected to return.

We are an agency who specialises in the creation and running of campaigns, we understand this process very well. We also understand that budgets are not endless. With the understanding of the above we can ensure that budgets can be placed in the best areas for return and advise how much is enough!

Thanks for reading,

Adam

Twitter
LinkedIn
adam@ib3.uk
07794 492587