Do you know how much sales and marketing is really costing your business? More importantly – how are your sales measuring up? Even if you’re happy with your sales – are you as happy as you could be?
This week’s Magnify blog explores some of the data analysis that every business needs to know to honestly evaluate their sales and marketing efforts. Analysing your sales data is something that all businesses can do. Once you’ve taken the time to check how you’re really doing, you will be able to identify any areas where you are leaking sales revenue and then make plans to turn this around. You’ll also know where you’re doing well, and be able to confirm which sales strategies and tactics are working that you should continue. Even better, if you’ve already got a CRM system, you should be able to access this information relatively easily.
It’s an amazing time to be in business. Many of the metrics and analysis tools previously only available to large corporates are now easily accessed by all businesses. There are some very good blogs which this post references on the type of sales data that all business owners need to be aware of. Check out this list for just some of the data-driven insights you can pull to power sales and marketing for your business:
One – CLV or CLTV or LTV – Customer Life Time Value, or Life Time Value
Do you know how much, on average, each customer will spend with your business?
This is the total customer lifetime value – as prediction of the net profit attributed to the entire future relationship that your business will have with that customer.
The HubSpot blog explains this so beautifully – here is their definition:
To calculate LTV, follow these steps for a given time period:
- Take the revenue the customer paid you in that time period.
- Subtract from that number the gross margin.
- Divide by the estimated churn rate (aka cancellation rate) for that customer.
For example, if a customer pays you $100,000 per year where your gross margin on the revenue is 70%, and that customer type is predicted to cancel at 16% per year, then the customer’s LTV is $437,500.
Two – CAC or Customer Acquisition Cost
How much does it cost to bring on board each new customer, including your CPL or Cost Per Lead?
Your CAC is all the costs required to acquire a customer and is calculated using an ‘umbrella’ view of your business.
The formula for calculating CAC is
(Spend + salaries + commissions + bonuses + overheads)
# of new customers during that time period.
So, for example, if you spend $50,000 on sales and marketing in a given month, and add 10 new customers that same month, then your CAC for that month was $5,000.
Three – CPL or Cost per Lead
This is the amount that it costs for your marketing department/function to acquire a lead and is part of your CAC or Customer Acquisition Cost.
How do you define a Lead? A lead is a potential customer with a real need, real budget and real desire to buy.
Do you know how much it costs to find an ideal customer who is interested in finding out more about how your company can help to solve their problems?
If you sell to large corporates or to Government departments, this cost can be quite large, as you navigate your way through multiple decision-makers and influencers, long-range budgets and high risk-aversion (potentially to swapping from a ‘safe’ supplier).
To really dig deeply into the cost of sales, pick out 5 to 10 clients.
You want to be able to track their client history through your CRM (or at least remember it if you don’t yet have a CRM).
Considering each client individually, look at all the activities you did that contributed to that new customer. Every email, every telephone call, every zoom meeting, every coffee. Add up the total time you spent to bring in that new customer.
Now get your hourly rate and multiply it by the total time you spent to sell to that new customer.
Are you happy with the length of time and the investment that it took for your sales and marketing to deliver results for your business?
Four – LTV:CAC – Ratio of Lifetime Value to Customer Acquisition Cost
The ratio of LTV to CAC
Now that you have your LTV and CAC, you can compute the ratio of these two numbers.
Back to our original example:
If it cost you $5,000 to acquire a customer with an LTV of $437,500, your LTV:CAC is 87.5 to 1. Which is extremely healthy in any language.
Five – MRR – Monthly Recurring Revenue
If you have a subscription-based business, this will be the amount of revenue that your business receives each month.
Your MRR includes MRR gained by new accounts (net new), upsells (net positive), lost from down-sells (net negative) and lost through any cancellations (net loss).
Six – NPS – Net Promoter Score
How likely are your customers to recommend you to others?
Your NPS is a customer satisfaction metric that measures this likelihood on a scale of 0-10.
Each customer is sent a simple survey designed to help determine how loyal they are to your business. Within that survey, each customer will give your business a rating between 0-10 that indicates how likely they are to recommend you to others.
Once you’ve got your surveys back in, you can calculate your overall NPS by subtracting the percentage of customers who would not recommend you (detractors, those who gave scores 0-6) from the percentage of customers who would recommend you (promoters, who gave scores 7-10).
Of course, an accurate NPS is dependent on your customers sending their feedback surveys in. Feedback is incredibly valuable for your business. Regularly assessing your company’s NPS will help you spot ways to develop and improve your products and services, thus increasing the loyalty of your customers. It will also help you spot unhappy customers before they churn, giving you the opportunity to (hopefully!) turn this situation around.
Seven – QoQ – Quarter over Quarter
A way of measuring changes in levels, expressed by looking to the previous quarter. Quarterly numbers are a good base measurement, as they are generally less volatile than monthly measures, even if they may be more volatile than year over year measures.
Eight – QTD – Quarter to Date
It’s always helpful to look back a little, to check how you’re tracking with your sales goals.
This time period, starting at the beginning of the quarter you are currently in, and ending at the current date, will give you a good look at how close you are to achieving budgets and overall performance goals.
Nine – ROI – Return on Investment
This is the standard performance measure used to evaluate how worthwhile an investment is. We’re talking about sales – so ROI for sales will tell you whether your company’s spend on sales has had the level of return you’re looking for.
The basic formula for ROI is
(Gain from investment – Cost of Investment)
Cost of Investment
The result is usually expressed as a percentage or ratio.
Obviously, you want your ROI to be a positive number – a negative ROI tells you that the initiative you’re studying is losing money.
So, once again let’s look at our original example –
If you spend $50,000 on sales and marketing in a given month, and add 10 new customers that same month, then your CAC for that month was $5,000.
Remember that your $5,000 customer had an LTV of $437,500.
This means the gain from your investment of $5,000 is $432,500.
Plugging those numbers into the ROI formula:
($432,500 – $5,000) Divided by $5,000 Equals an ROI of 85.5%
When you look at it that way, your $5,000 investment was actually a very cheap way to acquire such a good customer and is most definitely worth continuing.
ROI is also used a lot in marketing, where the results of every tactic and channel can be assessed.
Ten – ICP – Ideal Customer Profile
Do you know the numbers on your ideal customers – the kinds of customers you and your team love to serve, who appreciate what you do, and who allow you to do your best work? Also – the kinds of customers whose sales deliver the highest profit levels to your business?
Look through your sales data to check the following:
- How much do your customers spend?
- How frequently do they spend?
- How long does their average customer engagement last?
- Number of staff at their company?
- Geographic location?
- Company size?
- What industry/industries are your best companies in?
When you’ve drilled right down into the detail of this ideal customer profile data, you’ll know exactly which potential customers to focus on for your sales efforts.
Eleven – CCR – Customer Churn Rate
It’s great to have new customers, but make sure you’re keeping existing customers happy and loyal to your business.
Customer Churn Rate is a handy metric for measuring customer retention and obviously, whether your customers feel they are getting value from dealing with your business.
Here’s how to work out your CCR:
(# of customers at beginning of period – # of customers at the end of the period)
(# of customers at the beginning of the period).
Going back to our original example:
At the beginning of the month, say your business has 50 customers.
You gain 10 new customers that month, but also lose 17 existing customers.
Your CCR for that given month is
(50 – 43) divided by (50), which equals a CCR of 14%.
Twelve – CR or Conversion Rate
Of all the customer meetings, zoom or in person – what percentage decide to buy from you?
Are you happy with this percentage?
Thirteen – Debtor Days
How long does it take, on average, for your customers to pay their invoices?
Look deeply into your invoicing data to work this one out.
Are those large customers paying on time? Are you serving them with your best products and services, the ones where you deliver the most value for the highest profit level? Large customers who pay late and provide just enough revenue to help you keep the lights on, are not as secure as you might initially think. The more unpaid invoices your business carries, the more vulnerable you are to market changes.
Fourteen – Top Sellers
What products/services are most popular?
Are you selling more of your high-profit offerings than anything else?
How could you increase pricing, if you’re not charging enough?
Fifteen – Your customer’s overall journey
Scan for opportunities as you consider your customer’s overall journey. What are the serendipitous moments that happen in your industry that you could take advantage of?
What is your customer going to do next, now that they’ve bought from you? How can you help them with this?
Conclusion – What now?
Consider the metrics you’ve just worked out that measure sales success in your business.
- Are these numbers better than you thought, or are they worse than you imagined?
- How can you do less to make the same amount, or even more in sales?
- What can you automate?
- What actions can you remove altogether, without impacting revenue negatively?
Once you’ve analysed your numbers to consider what you could remove – you may even decide that fundamentally, you still need to do most of the same activities as part of your business development.
If this is the case, it’s time to ask yourself even harder questions:
- Can you afford to keep doing business this way?
- Do you want to?
- Is it time to put your prices up, to help cover the costs of your business development?
Whatever you decide, the great news is that you’re now free to trust your new data-driven decisions. No more guesswork, no more playing games or wondering what is really happening. Whether the news is what you hoped for, or what you dreaded, you are now informed about the state of sales in your business, so that you can make better, more strategic decisions towards your sales success in the future.