Profit-Driven Digital Marketing: Assets

Profit Driven Digital Marketing: Assets image digital marketing assetsProfit Driven Digital Marketing: AssetsIf we’re going to analyze the future profitability of our marketing efforts, let’s do it like any business would—by building a Pro Forma Balance Sheet. We can break down digital-marketing-driven revenues, costs and investments into Assets, Liabilities and Owners’ Equity, just like we do for our business as a whole. First, we’ll look at Assets, the value of what we have sold and what we will sell in the future in terms of digital marketing. Let’s take a look at a hypothetical digital marketing department (or agency) and make some reasonable definitions and assumptions.

Definitions

Current Revenue – Sales revenues received this month (let’s start in January) directly attributable to digital marketing. Identify all customers who have closed this month and first became leads via one of your digital marketing initiatives: SEO, PPC, email, social media, blog, website referral, download, video, webinar, etc. You should be able to easily identify customers from digital marketing if your marketing automation system is integrated with your CRM system.

Profit Driven Digital Marketing: Assets image customer attributable to marketing resized 600Profit Driven Digital Marketing: Assets

New Account Revenue – Now we need to project ahead how many new customers we can reasonably expect based on current digital marketing KPIs and reasonable growth rates, for example as a base case:

  • Current Website Traffic – 10,000 unique visits per month
  • New Leads (form conversions) – 100 per month
  • Visit-to-Lead Conversion Rate – 1%
  • Lead-to-Customer Conversion Rate – 1%
  • Average Monthly Revenue Per Customer – $1000

In this case, and with no growth in primary KPIs, we can expect (on average) to add one new customer per month, or $1,000 in new revenue per month.

Initial Financial Assumptions

  • Sales and Marketing are aligned and operate as a single entity (BIG ASSUMPTION), so that we can break out costs (liabilities) for the entire sales cycle
  • 10 Current Customers (under contract at the start of the cycle)
  • Annual Churn Rate – 20%
  • All data is rounded to the nearest integer or dollar

Base Case—No Growth in Primary KPIs

Assumptions: No Growth in KPIs over 12 months, 1% Visit/Lead Rate, 1% Lead/Customer Rate, 20% Churn (over 12 months).

 Jan  Feb  Mar  Apr  May  Jun  Jul  Aug  Sep  Oct  Nov  Dec
 Website Traffic  10000  10000  10000  10000  10000  10000  10000  10000  10000  10000  10000  10000
 Visit/Lead %  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%
 New Leads  100  100  100  100  100  100  100  100  100  100  100  100
 Lead/Cust. %  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%
 New Customers  1  1  1  1  1  1  1  1  1  1  1  1
 Current Revenue  10000  10833  11653  12459  13251  14030  14796  15500  16290  17019  17735  18440
 New Account Rev.  1000  1000  1000  1000  1000  1000  1000  1000  1000  1000  1000  1000
 Churn  167  181  194  208  221  234  247  259  272  284  296  307
 Total Monthly  10833  11653  12459  13251  14030  14796  15500  16290  17019  17735  18440  19132

 

Annual Revenues: $181,188 – Base Case

Case 2—Moderate Website Traffic Growth

Assumptions: 25% Growth in Traffic, 1% Visit/Lead Rate, 1% Lead/Customer Rate, 20% Churn (over 12 months).

To achieve this model, we need to ramp up our inbound marketing efforts across the board—blogging (and blogger outreach), social media promotion and engagement, SEO, PPC, press releases and email marketing. (In my next post on Liabilities, I’ll describe the resources needed to get to this and other levels.)

 Jan  Feb  Mar  Apr  May  Jun  Jul  Aug  Sep  Oct  Nov  Dec
 Website Traffic  10000  10227  10455  10682  10909  11136  11364  11591  11818  12045  12273  12500
 Visit/Lead %  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%
 New Leads  100  102  105  107  109  111  114  116  118  120  123  125
 Lead/Cust. %  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%
 New Customers  1  1  1  1  1  1  1  1  1  1  1  1
 Current Revenue  10000  10833  11653  12459  13251  14030  14796  15550  16290  17019  17735  18440
 New Account Rev.  1000  1000  1000  1000  1000  1000  1000  1000  1000  1000  1000  1000
 Churn  167  181  194  208  221  234  247  259  272  284  296  307
 Total Monthly  10833  11653  12459  13251  14030  14796  15550  16290  17019  17735  18440  19132

 

Annual Revenues: $181,188 – No Increase Over Base Case

Case 3—Moderate Growth in Traffic and Visit/Lead Conversion Rate

Assumptions: 25% Growth in Traffic, Increasing Lead/Visit Rate (1%-2%), 1% Lead/Customer Rate, 20% Churn (over 12 months).

In this model, we not only need to increase traffic through inbound marketing, but we also need to improve lead conversion rates through demand generation campaigns, calls to action, email marketing and conversion rate optimization (A/B testing) on landing pages, CTAs and emails.

 Jan  Feb  Mar  Apr  May  Jun  Jul  Aug  Sep  Oct  Nov  Dec
 Website Traffic  10000  10227  10455  10682  10909  11136  11364  11591  11818  12045  12273  12500
 Visit/Lead %  1%  1.09%  1.18%  1.27%  1.36%  1.45%  1.55%  1.64%  1.73%  1.82%  1.91%  2%
 New Leads  100  112  124  136  149  162  176  190  204  219  234  250
 Lead/Cust. %  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%  1%
 New Customers  1  1  1  1  1  2  2  2  2  2  2  3
 Current Revenue  10000  10833  11653  12459  13251  14030  15796  17533  19241  20920  22571  24195
 New Account Rev.  1000  1000  1000  1000  1000  2000  2000  2000  2000  2000  2000  3000
 Churn  167  181  194  208  221  234  263  292  321  349  376  403
 Monthly Total  10833  11653  12459  13251  14030  15796  17533  19241  20920  22571  24195  26792

 

Annual Revenues: $209,274 – 16% Increase Over Base Case

Case 4—Aggressive Growth in Traffic, Visit/Lead Conversion Rate and Lead/Customer Conversion Rate, Reduction in Churn

Assumptions: 50% Growth in Traffic, Increasing Visit/Lead Rate (1%-3%),  Increase Lead-to-Customer Rate (1%-3%), Decrease Churn (20%-10% over 12 months).

In this model, we need to turn on the jets across the board—aggressive content marketing schedule, demand generation and conversion rate optimization, effectively doubling our output and engagement in all channels.

Jan  Feb  Mar  Apr  May  Jun  Jul  Aug  Sep  Oct  Nov  Dec
 Website Traffic  10000  10455  10909  11364  11818  12273  12727  13182  13636  14091  14545  15000
 Visit/Lead %  1%  1.18%  1.36%  1.55%  1.73%  1.91%  2.09%  2.27%  2.45%  2.64%  2.82%  3%
 New Leads  100  124  149  176  204  234  266  300  335  371  410  450
 Lead/Cust. %  1%  1%  1%  1%  2%  2%  2%  2%  3%  3%  3%  3%
 New Customers  1  1  1  2  4  5  5  6  10  11  12  14
 Current Revenue  10000  10917  11826  12727  14621  18499  23345  28151  33916  43633  54270  65817
 New Account Rev.  1000  1000  1000  2000  4000  5000  5000  6000  10000  11000  12000  14000
 Churn  83  91  99  106  122 154  195  235  283  364  452  548
 Monthly Total  10917  11826  12727  14621  18499  23345  28151  33916  43633  54270  65817  79269

 

Annual Revenues: $396,991 – 219% Increase Over Base Case

Summary

We have looked at several possible scenarios for growth in primary KPIs. Here’s a summary for Year 1:

Scenario Traffic Visit/Lead Lead/Cust. Churn Revenue Growth Base Case 10000/mo 1% 1% 20% $181,188 0% Case 2 +25% 1% 1% 20% $181,188 0% Case 3 +25% 2% 1% 20% $209,274 16% Case 4 +50% 3% 3% 10% $396,991 219%

Discussion

Under these scenarios and their underlying assumptions, several conclusions can be reached about the impact of marketing priorities, activities and levels on revenue growth.

  • Revenue growth is relatively insensitive to growth in website traffic as long as visit-to-lead and lead-to-customer conversion rates remain low.
  • Even a doubling of visit-to-lead conversion rate, with a 25% increase in website traffic has a modest impact on revenue growth (16%). Why? Because traffic increase and lead generation alone are not sufficient to generate new customers as long as lead-to-customer conversion rates remain low. We must focus on the entire sales funnel.
  • To achieve a substantial increase in earnings (200%), you need an aggressive program to increase traffic and visit-to-lead and lead-to-customer conversion rates. As you can see, explosive growth is possible within a few months of launching these digital marketing initiatives, but only if they focus on mid-funnel and bottom-funnel conversion rates.

An aggressive program to achieve rapid growth in KPIs and revenues would require a full spectrum of enterprise inbound marketing and commitment of resources involving:

  • Increasing qualified (targeted) website traffic via content marketing aimed at attracting buyer personas on an aggressive publication schedule
  • Increasing visit-to-lead conversion rates via landing page, CTA and email conversion rate optimization (A/B testing) and personalization, channel-based metrics (which channel converts best), campaign-based metrics (which type of campaign converts best)
  • Increasing lead-to-customer conversion rates via lead nurturing, personalization and sales and marketing alignment
  • Reducing churn via content marketing and lead nurturing aimed at customers, customer-centric social channels and support forums, sales and marketing alignment
  • Sales augmentation (upsells, cross-sells) via sales and marketing alignment, newsletters, customer channels (social + web), customer-centric email and direct mail campaigns

Next: Liabilities. We’ll look at the actual costs to achieve revenue goals and examine some best practices for enhancing profitability.

Profit Driven Digital Marketing: Assets image 07d95530 47d2 4975 ad98 07125260daac4Profit Driven Digital Marketing: Assets

photo credit: SalFalko

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