3 Metrics Smart Marketers Use To Dominate a Market

February 12th, 2015 by Dave Lavinsky

“He who can spend the most to acquire a customer, wins.”

Each of the high-impact metrics I’m going to share with you today do just that.  They allow you to measure how much you can spend to acquire customers.

These are the kind of metrics that, if you track them and improve upon them, allow you to dominate a market.

And none is more critical than the first…

Metric 1 – Lead Conversion Rate (LCR)

Sure — you’re tracking NUMBER OF NEW LEADS.

But are you tracking the more important metric?  The Lead Conversion Rate, or the rate at which leads convert into paying customers.

Why Should You Care?

Let’s say you get 100 leads per day and your lead conversion rate is 10%. Thus, you’re getting 10 new customers per day. Conversely, your competitor is getting half the leads (50 per day), but has a 30% Lead Conversion Rate.

In this case, your competitor is getting 15 new sales/day to your 10 (and the competitor will likely have less advertising cost because they only needed to acquire half the leads to get more customers).

By increasing your lead to sale conversion rates, your profits grow dramatically since revenue rises sharply while your advertising costs stay the same.

In other words, you can now spend more to acquire MORE customers.

What Does It Look Like?

The formula for Lead Conversion Rate is…

Number of Sales / Number of Leads

Take Action

Look at your processes and funnel AFTER you capture the lead.

• Do you make an immediate offer? (As we recommend in our Customer Value Optimization process)
• Do you have effective follow up (email marketing and ad retargeting)?

Metric 2 – Contribution Margin (CM)

Contribution Margin is perhaps the single most important metric you must track as a digital marketer.

Contribution Margin is an accounting metric that equals…

Sales – Variable Costs

These variable costs can include:

• Advertising costs
• Cost of goods sold
• Affiliate commissions
• Sales commissions

…amongst other things.

What Does It Look Like?

If you’re selling educational DVDs online, the formula would equal your sales minus the cost of…

• manufacturing/shipping the DVDs,
• fees paid to affiliates,
• advertising costs incurred with Google AdWords and Facebook ads,
• sales team commissions if applicable, and
• refunds processed.

Below is a sample Contribution Margin chart.

Important: if your business does lots of product launches, you may want to compare your Contribution Margin on a quarterly instead of a monthly basis, as monthly margins may be exaggerated by launches.

Why Should You Care?

As a digital marketer it’s easy to increase your Facebook ad budget, for example, and see your sales soar. Or get affiliates to promote your product by offering high commissions.

The issue in taking such actions is that you often decrease your Contribution Margin (and profits) even though sales increase.

Take Action

To improve your Contribution Margin, make sure you’re not adding less profitable sales as you grow.

For instance, if the commissions or advertising costs you’re paying per new sale are too high, your Contribution Margin may decline. Assess new sales opportunities to make sure they’re profitable.

Metric 3 – Earnings Per Click (EPC) [aka Revenue Per Visitor]

Ok… I saved the best for last.

The formula for EPC is simple…

Sales / Clicks

Last year at Traffic and Conversion Summit I did a quick 3-minute video talking about the ONE metric you should be tracking.  Which metric did I choose?  You guessed it… EPC or Revenue Per Visitor.

Here it is…

Metrics, Metrics, Metrics

Start tracking these metrics and use them to build a business that is both willing and able to spend more to acquire customers.

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http://www.digitalmarketer.com/smart-metrics-analytics/