Profit-Driven Digital Marketing: Assets

digital marketing assetsPreviously in this Series, we talked about Setting Goals. If 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. customer attributable to marketing resized 600 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). Hire a HubSpot Certified Partner today! You'll be glad you did. 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.