23 Aug How To Easily Calculate Your Marketing Agency ROI
One thing that all business owners need to know… is how to calculate your marketing agencies ROI for any campaigns or partnerships!
This can seem overwhelming and confusing at first, but this article will break it down for you – so it’s easy for you to remember.
Knowing how to accurately calculate your ROI will be critical in helping you make smart business decisions! A lot of marketing agencies out there will not bring you a positive return on investment. Unlike many of our competitors, we do. And that’s why we’ve created this resource specifically for business owners that are either currently paying an agency to help them, or thinking about hiring one to get things going!
(SALES COPY ALERT) Ok, I’m going to just put this out there so you’re fully aware… Our #1 priority at ZIMA is generating a positive ROI for you ASAP!
Ok… just had to get that out… Now let’s dive into how you can tell if your agency/partnership is truly helping your business grow! 🙂
Your Most Important Metric: Average Customer Lifetime Value (ACLTV)
First, to calculate your ROI, you need to determine your average customer lifetime value (LTV).
It’s important to understand that when calculating ROI, you must determine the LIFETIME value of customers – not just how much they make you that month or the first time they pay you. For example, with a lot of service-based businesses, customers typically retain memberships for a few months – not just one! This is why ACLTV is a very important metric to understand.
Here’s how to determine ACLTV:
For service businesses: If your average customer pays $100/month, and on average they stick around for 3 months, this means your average customer lifetime value is $300.
For product businesses: If your average customer pays $300 for your product, and on average spends another $200 sometime in the future, this means your average customer lifetime value is $500.
Remember we are speaking in AVERAGES, so make sure to average out your highest paying customers and your lowest paying customers to find the middle ground.
Once you understand your average customer lifetime value, it’s a lot easier to gauge whether or not your marketing efforts are paying off! Also make sure to reevaluate your numbers every few months as things change! Right now your average customer lifetime value might be $150 for example, but if you begin thinking of creative ways to raise your ACLTV, in 3 months that number could rise significantly – meaning more profit!
Ideally, you want your ACLTV to rise over time, while your cost-per-customer-acquisition decreases!
How Can I Raise My Average Customer Lifetime Value?
Your profitability all depends on how much your customers are worth to your business.
The easiest way to raise this figure is to raise your rates or price… But there are other creative ways too…
I’d like to introduce you to a concept that I learned from marketing legend Russell Brunson… “The Value Ladder”.
As you can see, your general goal (no matter what type of business you’re in) is to get customers to ascend your value ladder. This means not only having one product or service offer, but many!
Often it’s easiest to get new customers in the door by offering “bait”, or lower-cost offers. This allows you to easily get a ton of people in your doors.
For example, a gym might offer a free pass for people to try things out. A chiropractor might offer a free adjustment with someone’s first visit. A consultant might offer a free 15-minute phone call. It’s different for every business, but the concept is the same.
After your initial “bait”, your customers know who you are and (hopefully) like you. It’s up to you to provide a fantastic first experience that leaves them wanting more. Once they feel good about you and your business, this is when you can up-sell them on your better product/service! This is when they can ascend your value ladder!
To give you a clear example, here’s what a dentist’s value ladder might look like:
Bait: Free Teeth Cleaning ($0)
Frontend Offer: Teeth Whitening ($100+)
Core Offer: Retainer/Braces/Etc… ($1000+)
Backend Offer: Cosmetic Surgery ($5,000+)
Notice how the dentist makes more money the higher someone ascends their value ladder? This is exactly how you should position different products/services in your business!
Another great example is Apple’s line of computer products:
Low-ticket Offer: iPod ($50+)
Frontend Offer: iPhone ($500+)
High Ticket Offer: Macbook ($1,000+)
Top-tier Offers: Macbook Pro, iMac, Mac Pro, etc ($1,500-$30,000!)
Make sure you have a value ladder in place for your business! Some people will want to ascend, get more value, and pay you more money. Some people will only want the low end offer, and either way it’s fine… But give your customers a chance to give you more money in exchange for more value if they want to!
Thinking of ways to provide more value for your existing customers can really help grow your business. Maybe you could release a video course? (This is passive income!) Or add a “top-tier” mastermind for those who want bigger and better results quicker!
Your imagination is your only limit! Get creative 🙂
How To Tell If Your Marketing Efforts Are Paying Off Or Not
Now let’s say you own X Gym…
If a single customer, on average, is worth $250 to your business, and you are spending $4,000/month on marketing services, then you need to acquire 16 new customers each month to justify that price and break even. Anything over 9 is pure profit!
If a single customer, on average, is worth $1000 to your business, and you are spending $10,000/month on marketing services, then you need to acquire 10 new customers each month to justify that price and break even. Anything over 10 is pure profit!
See how this works? It’s pretty straight forward.
Setting smart and measurable goals is also much easier when you know your numbers… This is why we recommend all of our clients understand ACLTV and these ROI formulas.
Would you spend $5 to make $10?
How about $500 to make $1000?
Or… $10,000 to make $20,000?
Most people get uncomfortable with those bigger numbers, but if you know your numbers then it shouldn’t phase you at all. If you know you’re going to make more than you’re spending, you’d be crazy not to do it if you’re able to!
Lastly, let’s go over one last example of how you can calculate your marketing agency ROI…
Let’s say you hired a marketing company and paid them $4,000 for the first month. Also you decided to invest $2,000 into your ad spend.
After the 30 days, they managed to bring in an additional $15,000 in revenue. The breakdown would look something like this:
Revenue – Advertising Spend – Marketing Agency Costs = Your Profit
Your Profit / Your Investment = % ROI
$15,000 Revenue From Marketing – $2,000 Ad Spend – $4,000 Marketing Agency Cost = $9,000 PROFIT
Your Profit: $9,000 / Your Investment: $6,000 = Your ROI: 150% ROI
I hope this article helped shed some light on how to calculate your ROI. Crunch your numbers, find out what your ACLTV is, and invest in what works!
Wishing you the best – Team ZIMA
P.S. If you’d like to jump on a quick call with us to see if you qualify for a special introductory offer, visit the link below now!