In our previous blog, we shared how you can identify your most successful and cost-effective lead generation strategies; if you missed it, make sure to head back and read that blog before getting started with this one. 

Once you’ve worked your way through the steps in that blog post, you’ll have a comprehensive list detailing which of your lead generation strategies are generating the most leads and which are the most cost-effective. 

But if you want to improve your business this year, you can’t simply analyse this data in isolation. If you were to stop there and only invest in the cost-effective channels without considering your conversion rate, you’d be playing the fool’s game. 

Before we get started, you must remember that whilst this may initially seem complicated, having this information is incredibly valuable to both you and your business. If at any stage, you need help calculating any of the following metrics, get in touch will Bill.  

What is ‘conversion rate?’ 

Firstly, it is essential to understand what we mean by conversion rate; we’re referring to the number of leads that convert into customers (either one-off clients or long-term retainers).  

Why you need to know your conversion rate: 

As a business owner, you need to make it a habit of calculating your conversion rate on a regular basis. Without it, you risk mindlessly investing in channels that you don’t know the return on investment for. 

For example, you might be paying to be a member of a networking group, which might help you generate many leads (therefore, you have a low cost per lead). It sounds like a worthwhile investment – right? Wrong. Because if those leads you gain from the networking group rarely convert, then quite frankly, it isn’t worth the time or money. 

So, how do you get started on understanding your conversion rate? You will already have your number of leads by source and the source of each of your clients too. The calculation to work out your conversion rate by source is: 

Number of clients by source / Number of leads by source = Conversion rate by source 

So now you can look at: 

Comparing all of this information will allow you to determine what investments are paying off and which channels provide the best financial return by source. 

But we are not there yet…you can take this to yet another level of analysis by using the revenue all clients have generated for your business (including the referrals each client has given you!) 

Average lifetime value of a client 

Once you have information about onboarding clients, it’s time to move onto our next metric – the average lifetime value of a client. To calculate the average lifetime value of a client: 

Total cumulative revenue / Total number of clients = Current average lifetime value of a client 

If you find that the average lifetime value of your clients is £300, but you spend on average £1000 generating a lead, you will realise this is not a good return on investment from that source. 

However, if an average lifetime value of your clients is £12,000 and the average cost per lead is £1000, then this source is a worthy lead generation tool and is worth future investment.  

So, can you measure profitability by source? 

Now you have a good understanding of the return of investment for each of your lead generation channels; you’re likely wondering whether you can take this even further and calculate profitability by source. However, before you do – we suggest you consider, is a lead’s profitability driven by the source of the lead? Or perhaps it is driven by the service they receive whilst they are a client? 

Whilst the source does have a role to play, we believe that the service you’re delivering is a significant factor in helping to retain the client. 

If you’re unsure whether a client is satisfied, we suggest asking yourself – is this client passing me referrals? If they are, it’s a good indication that they’re satisfied. But if they’re not – it’s time to ask for feedback. And if you find they’re not completely satisfied, reassess your strategy and ask them where you can improve. Once they are delighted by the service they are receiving, they are much more likely to pass you referrals. The more referrals you can get, the more you will improve the average lifetime value of that client. You will also expand your client base and improve your return on investment. 

Do you need a hand calculating these metrics? 

We’ve covered a lot of different, valuable metrics in this blog post and whilst it may seem like another thing to add to the ever-growing to-do list, knowing these metrics will save you time (and money!) in the new year. By using these calculations, you’ll be able to identify which channels are worth your marketing investment. 

For help working these figures out, simply get in touch with Bill. He can help you work out the different metrics to help ensure you’re getting the best possible returns on your marketing investments.