In one of our previous blogs, we talked about why growth stalls out and how to adjust ad spending to ramp it up. If you haven’t read that blog, then I highly recommend you do before jumping into this one. As you’ll learn, increasing your ad spending allows you to adjust and maintain the number of sales you close.
You may be looking at your bank account and wondering how increasing and doubling down on your efforts is feasible. Sure, you have to spend money to make money, but you also need money to spend money.
Instead of considering what you have, look at how this cash flow could grow. From a sales standpoint, you need to adjust in order to afford increased advertising spending.
It’s a simple formula. Pull in more money; invest more money in your business. Then, pull in more money. It’s a give-and-take scenario, but first, you’ll need to dig into the numbers and specific metrics for your industry to make it happen. Here are 5 of the most important factors to consider.
5 Sales Numbers To Increase Advertising Spend And Value
When it comes to increasing the money you earn, your leads and sales can tell you everything you need to know. However, these numbers need context beyond being a “hot” or “cold” lead.
For example, if I told you that 80% of dentists choose Colgate over other toothpaste brands, then you’d be more inclined to select that brand yourself. If it’s good enough for a dentist, then it has to be the best, right? However, in that study, dentists could choose several brands they would prefer, not just one. With this in mind, Colgate doesn’t seem like the only superior paste. (I leave that to the dentists to debate.)
The point is that you cannot trust your leads and sales numbers alone to give you the information you need. You need the context of these 5 metrics together:
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Total number of leads
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Number of qualified leads
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Cost per qualified lead
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Cost per sale
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Churn rate
Let’s play out a little scenario to explain this. If you get 100 leads, and 40 of those leads are not qualified, then you will have a 60% success rate in generating qualified leads. (This blog post from early 2020 can help you determine who is qualified and who isn’t.)
Now, we have to consider what that means in terms of costs and actual sales. If 15% of your 60 qualified leads turn into sales opportunities, you have a chance to sell to 9 people. Then, if your salesperson has a 20% close rate, you get 1.8 sales per every 100 leads you generate.
At this rate, if you spend $35 on every qualified lead, it would cost $2,100 to make 1.8 sales. That’s a pretty hefty price tag when you consider that most customers (let alone new customers) aren’t spending nearly enough per month with you to make up for that. This means you’ll lose money on the front end, as is common with new customer acquisition. However, do you have the capacity to take a hit like that and turn it into a real benefit?
The final metric, churn rate, is the stand-alone metric that can still impact your sales and spending. When you lose customers, you lose cash flow. So, without this metric, it’s impossible to have a clear picture of how your company is trending, succeeding, and failing. And when you don’t have a clear understanding of how your sales are impacted, you’ll be left spending more money every month.
(By the way, I have a new book, Stop Losing Customers, that details how to calculate and reduce churn. Grab a copy here and make churn one of your best metrics.)
Why These Matter
Tracking and contextualizing these 5 metrics can help you find the weak points in your sales and the gaps in customer retention. Ultimately, it’s easier and more cost-effective to nurture your relationship with an existing customer than it is to generate new leads and make sales. You do need to focus on your sales, but you must also cultivate the relationships that push greater cash flow into your business.
Lastly, don’t lie to yourself. Numbers that are b.s. do nothing but hurt you. However, you can turn the sting of terrible data into motivation to change it. When you understand how these metrics impact your sales and overall spending, you can actively work to improve your numbers.
If your leads are weak, push for better, stronger leads to boost your number of qualified leads, which will result in better sales. You can also offer more training to your salespeople to bump that 20% close rate to 30% or 40%. Additionally, learning more about the concerns of your demographic and how to tap into their needs will turn more leads into sales. Finally, you can implement stronger relationships with your current clients to bolster your retention rate and drop the number of clients leaving you in the dust.
After all, when the numbers speak, you have to listen.
