How to Estimate your Cost per Sales Conversion

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I know it is April. That is Vermont for you!

I know two posts in two days. You are wondering how that happened? It is Friday and there is an ice pellet storm passing through Vermont…in April. Just as all the snow is melted and I see grass.

Yesterday the discussion was about determining the cost per person (or 1000 people) to see a paid media placement. Today we want to go one step further. How to figure out the cost per sales conversion. The achilles heel of marketing vs any other business discipline like manufacturing, R&D, or direct sales, is how hard it can be to measure invested resources and the outcome from that.

Today with so many points of contact by Brands across many channels on and offline to determine which channels pay off is tough. Plus there are so many outside variables. Maybe the economy is bad or really good. Maybe the new product line blows away the old or is a step back? Are you a household name where you sell? How much competition do you have? How easy is it for someone to substitute what you sell for something else?

A big Brand with a mega marketing budget and years of historical reference can probably get a feel for what impacts their business more. A small business this is harder but still possible. And even then the math here is sadly squishy.

A: The most simple way to measure is to figure out your total sales each month and divide into the total marketing spent. You can then see what percent of sales went to marketing.

March 2013 – $1000 in sales, $100 spent on Marketing  = 10%

What if next year in March -$1500 in sales, $125 spent on Marketing = 8.3%

The reason the math is squishy is you have to decide if spending the extra $25 (25% increase)  was the reason sales went up 50%. If the answer is yes wouldn’t you always spend the extra $25?

B: Next you can go by customers. You might know the value of a new customer (hopefully you do).

March 2013 – 1000 customers – $100 in marketing = $0.10 per customer

March 2014 – 1500 customers – $125 in marketing = $0.083 per customers.

You might also know that at 1000 customers the average customer spends $10 with a $3 net profit. You might also know that once you have 1250 customers the net profit goes up to $3.25 due to economies of scale. That gives an added incentive to send the extra $25!

C: What about the marketing channels? There are ways to measure but only if you incorporate specific ‘unique tags’ to ensure you can determine where a sale came from.

Forms of ‘tags or identifiers’:

  1. QR Code that is unique for that media channel
  2. Unique phone number for a phone sale
  3. A Coupon
  4. Pay Per Click Digital Ad
  5. Unique Web URL
  6. Unique Call To Action
    • ‘special webstore coupon code’
    • Post a secret word on Facebook (Say Shopping at Check out get a free hand bag with $100 purchase)
    • Location Based Service Check In

A smart marketer will mix things up to gauge impact and record these. You can then start planning your marketing spend well in advance. And while I am the first to always want to know why…..sometimes there is no why. Maybe for some reason in May every year if you double up on cable TV ads sales triples. The one year you didn’t sales were flat. In my humble opinion question what isn’t working first and spend on what is.

Need some help figuring this all out with your own business let me know. Have a question or want to share what works for you please comment below!

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About chiefalien

Howie Goldfarb with 20 years of Sales and Marketing experience founded Blue Star Strategic Marketing in central Vermont to serve as the objective and strategic adviser of brands to help them grow and thrive. His Degree in Finance and 14 years of B2B sales to Fortune 500 companies gives him a CFO’s view of marketing. Thus bringing a dose of reality to the confusing world of jargon, spin, and hype. Also playfully known as the Chief Alien of Blue Star Strategic, Howie relishes his role as an industry outsider. A native New Yorker and former Angelino, he currently lives in the Green Mountains of Vermont and is still seeking his first moose sighting. His passions are living life, art, music, the outdoors, he tries to cook and loves the Vermont Fresh Network – local sustainability initiatives like farm to table and buying local.
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