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Struggling to grow your business? Don't ignore these 6 magic numbers that increase profitability

Written by Ben Cartwright
Published 17/01/2019
Ben Cartwright

When you’ve started to plan for your next quarter or 6 months in business, have you felt that you don’t have all the information you need? Which marketing channels are delivering results? What was your ROI from your marketing in the last 6 months?  

Typically for many of us, when we sit down to plan we don’t have all the information and numbers we need to inform that plan. Here are 6 magic numbers that will give you the evidence and information you need to write an informed plan that will grow your business. While these numbers are specifically designed for your online marketing you can apply them to other marketing channels.

What are these magic numbers?

  1. Number of website visitors: You must know how many potential customers are visiting your website each month. This is the starting point for building a digital marketing strategy. If you don’t know how many people are visiting your site, you can’t plan any of your digital strategy.  The best way to measure your site traffic (as well as lots of other cool things) is to install Google Analytics.

  2. Visitor to lead conversion rate: A lead is any visitor to your website who takes any form of action.  They may fill out a form, or they might call you. The visitor to lead conversion rate is calculated as a percentage using this formula:

((Number of Leads) ÷ (Number of Visitors)) x 100

E.g. if you have 5,000 web visitors a month and 60 of those visitors convert to leads, visitor to lead conversion rate is calculated like this:

60 ÷ 5000=0.012

0.012 x 100=1.2%

So in this example only 1.2% of potential customers become leads.

3.Lead to sales qualified lead conversion rate: A sales qualified lead is someone who has either contacted you, or you have been in contact with them and there is an opportunity of a sale. The lead to sales qualified lead conversion rate is calculated as a percentage using this formula:

((Number of Sales Qualified Leads) ÷ (Number of Leads)) x 100

E.g. if you have 60 leads a month and 20 of those visitors convert to sales qualified leads, the lead to sales qualified lead conversion rate is calculated like this:

20 ÷ 60=0.3333

0.3333 x 100=33.33%

So in this example only 33% of leads customers become sales qualified leads.

4. Sales qualified lead to sale conversion rate: A sale is any customer who makes a purchase from you.  The sales qualified lead to sale conversion rate is calculated as a percentage using this formula:

((Number of Sales) ÷ (Number of Sales Qualified Leads)) x 100

E.g. if you have 20 sales qualified leads a month and 5 of those convert to sales, lead to sales conversion rate is calculated like this:

÷ 20=0.25

0.25 x 100=25%

So in this example 25% of sales qualified leads become sales.

5. Average sale value: This is the average amount of money you make on each sale. To calculate this, you need to look at the number of sales you made in the last month. You then need to look at the total sales value for the same month. The following formula will show you your average sale value.

(Total Sales Value) ÷ (Total Number of Sales)

E.g. if you have 5 sales per month and the total sales value for that month is £2,500, your average sales value is calculated like this:

£2,500 ÷ 5=£500

So in this example your average sale value is £500.

6. Average lifetime value: Once you have worked out your average sale value, you then need to work out the average lifetime value of your customers. This is based on the number of purchases your average customer makes. To calculate this you will need approximately 3 years worth of sales data. Look at the total number of different customers who have had in that period and also the total number of sales.  To work out the average lifetime value, you must work out the average number of purchases each customer makes and then multiply by the average sales value. The formula to calculate this is:

((Total Number of Sales) ÷ (Total Number of Unique Customers)) x Average Sale Value

E.g. if you have 2,200 individual sales across a 3-year period and during the same 3-year period, you have 198 unique customers and you have already worked out your average sale value to be £500, your average lifetime value is calculated like this:

2,200 ÷ 198=11.11

This is the average number of repeat purchases by your customers.

Now multiply by the average sale value.

11.11 x £500=£5,555.55

In this example the average lifetime value for a customer is £5,555.55

OK, we have these 6 magic numbers, but how does that help us with planning?

Using your magic numbers to make your plan

Let’s recap our examples:

  • Number of website visitors: 5,000
  • Visitor to lead conversion rate: 1.2%
  • Lead to sales qualified lead conversion rate: 33.33%
  • Lead to sale conversion rate: 25%
  • Average sale value: £500
  • Average lifetime value: £5,555.55

Let’s say that we wanted to increase our online revenue by adding an additional 60 new customers this year, how would we use these numbers to devise a plan.

Based on the current web visitors and conversion rates, we would have 60,000 visitors which would result in 720 leads and 60 customers which would generate a sales revenue of £30,000 and a lifetime value of £333,333

It would seem that the natural thing to do to generate 60 extra sales would be to just double your web traffic, however, doubling your web traffic in 12 months or less is going to be very expensive and difficult to achieve.  

You can then look at the other metrics to see if there is anything that can be done to increase sales at these points.  

E.g. by introducing dedicated landing pages and calls to actions, it might be possible to increase your visitor to lead conversion rate to 4.0%.  

By improving your marketing communication and offering your potential customers help and advice to solve their problems, you could increase your lead to sales qualified lead conversion rate to 45%

By revising your sales process and proving a better sales experience, you may be able to increase your lead to sales conversion rate to 40%.

By putting your prices up by just 2.5%, this increases your average sale value to £512.50, so what would those changes mean, without increasing your web traffic at all?

60,000 visitors x 4.0%=2,400 leads

2,400 leads x 45%=1,080 sales qualified leads

1,080 sales qualified leads x 40%=432 sales

432 sales x £512.50=£221,400

So based on this, you would base your plan on increasing your visitor to lead conversion rate, increasing your lead to sales qualified lead conversion rate, increasing your sales qualified lead to sale conversion rate and introducing a plan to increase your prices by 2.5%. What makes planning even easier is that you now have predefined goals to hit. I.e. 4.0% visitor to lead conversion rate, 45% lead to sales qualified lead conversion rate, 40% sales qualified lead to sale conversion rate and a 2.5% price increase.

So what the heck has average lifetime value got to do with it?

This is the icing on the cake. To make these changes is likely to take some level of investment — you may have to hire an in-house marketing person, or a marketing agency or maybe a consultant to help make these changes and let’s assume that will have a fairly significant associated cost.  It might even be as much as the additional revenue you produce (although certainly not in the example above). If that’s the case, why would you bother?

Average lifetime value means that you might not see a massive return on investment in year 1 but over the coming years, you will still be making money from those customers.  In the above example, your 432 sales have a lifetime value of £2.4M. Something to think about when you do your next 6 month plan.

Topics: Marketing

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