By Nicole Wise on Mar 1, 2012 1:11:00 PM
Marketing Tips and Hints
Entry four: Understanding and Improving Your Numbers
Before you spend a dime on getting more business, you need to know what that dime can do for you -- and how many more you can afford. Figuring it out can be as easy as understanding a few simple numbers. In fact, in the lawn care industry, there are four different values you should take into account: cost per lead, cost per sale, lifetime value of a customer and gross profit.
- Cost per lead - Let’s say you spend $100 to send out 100 direct mail cards. If you get 10 responses, you paid $10 for each one, and that’s your cost per lead. Predicting your response rate may be hard at first, so start by advertising on a small scale, making sure to monitor where the leads are coming from.
- Cost per sale - Take the ten leads we talked about above. Close five of them, and you have five new sales. Since you spent $100 on the campaign, each new customer cost you $20, right? Close. Remember to factor in other expenses of closing the deal (salesperson’s commission, costs of a lawn measurement/estimate, etc.).
- Lifetime value of a customer - Don’t think of your customers in terms of what they’re buying today. Instead, find out what your average customer spends over the entire course of their relationship with you. For example, if most stay with you for five years, and they spend $300 per year on lawn treatments, they’re worth $1,500 overall.
- Gross profit - What does it cost you to make that $300 a year from a customer? Look at costs for fuel, fertilizer/chemicals, labor, truck and equipment expenses, etc. Subtract these costs from $300, and you’ll have your annual gross profit.
Once you understand your numbers, it’s easy to put them all together. For example, if you expect to make $150 in a year in gross profits from your average customer, but you spend $125 to get their business, you need a new marketing tactic.
These numbers aren’t static. There are lots of things you can do to improve them. Three easy ways you can improve your numbers are by:
- Increasing your close rates - If you’re closing seven out of ten leads instead of five out of ten, your cost per sale will fall. Coach your team on responding faster and more professionally, and they’ll turn more leads into sales.
- Doing more for your customers (and getting paid for it) – Adding on different services will boost the lifetime value of your average customer. For instance, after an install, offer a fertilizing program!
- Cutting costs - Start by looking closely at how much you spend on materials or other costs. When was the last time you checked to see what else is out there?
When considering your numbers, always remember the golden street rule. Golden streets are your big-ticket to improving these numbers. They’ll make you more money and cut costs.
Stay tuned for next week’s entry in the Marketing Tips and Hints series or check out our Behind the Science of Holganix series for information on the Holganix product!