Strong business leaders understand the value of their expenditures by the potential return on investment. But often, in evaluating marketing plans, executives and those appointed to lead marketing fail to accurately understand (or calculate) the value of marketing results. Too often, we encounter companies who either de-value their leads or misunderstand the holistic value of their paying customers.
In this video blog, we spotlight an example of how to use customer lifetime value as the underpinning value for your sales and marketing efforts.
Transcript - Calculate the Value of Your Marketing and Sales Efforts
Most people might think a customer's worth as that first transaction; maybe they think it's worth that first year. But the reality is a customer might be worth six, eight, or even ten years of business, and anybody who's been in business knows that repeat business is more profitable than the first time you sell them.
So, five years down the road, you're doing much better on a margin basis than you were at the start. You discover where your real customer lifetime value is. Well, what does that mean a lead is worth?
We had an opportunity—we were just in front of a prospect yesterday — and we asked him what he thought the company's customer lifetime value was. And he said, "It's probably $50,000." He had been describing the kind of work that they were doing, so we challenged him: "No way. It's probably three or four or five times that amount!"
He went into the company's Saleforce dashboard and did a summary report. In the seven years they were on Salesforce, they had $82 million in deals done through roughly 240 customers. And so I said, "You don't need a calculator; $82 million at 240 customers—that's ~$300,000 in lifetime value." And then we said, "And you close at 44%, and so, 44% of $300,000—that's $132,000. $132,000 what a lead is worth."
"So, if you spend $100,000 doing inbound marketing, and you get two leads in a year—and you know you're going to get more than two leads in a year—but if you get two, it pays for itself!"
And he just said, "Oh, well, this just got too easy." And so, we know where he's going; he's moving forward.
Everybody in the business now understands that there's nothing more important that you could be doing than identifying and nurturing great leads and turning them into qualified leads.
And for the sales team, there's nothing more important that you could be doing than handling those leads, acting on them quickly, treating them as the assets that they are, and being more responsible than you've ever been—and more accountable to everybody in your organization that you're going to treat those leads right. Because those are jewels; those are highly intense assets.
Posted by Greg Linnemanstons With 18+ years in senior management roles at Fortune 500® and medium-sized companies, Greg has deep marketing and sales experience with CPGs and manufacturing. He leads strategic initiatives with clients and is involved in developing client inbound marketing plans. Greg holds an M.B.A. from Northwestern's Kellogg School of Management and a B.A. in Economics from Lawrence University.