Trying to budget for positive ROI for your construction company often is horrendously painful. See if the following scenario sounds familiar:
You assemble your team and pass out your sheet of KPIs from the previous year. Then, everyone gets to weigh in on how to go forward. Some say one thing, some say another, then someone (you?) make the final decisions.
You might decide on a few actionable tasks, like hiring an SEO consultant to pump up your website, or any other number of things, like do more on social media, add personalization to radio spots, etc. If you’re really adventuresome, you'll buy some PPC, Facebook, or YouTube ads.
But one year later you’re in the same meeting again. You pass out the same KPIs sheet—but what’s really changed? Maybe CAC has improved. Did you fire someone? I mean, I’ve seen this and am trying to be real here. I frequently talk to C-level executives, all of whom frequently share the same two main pain points: 1) "It’s hard to find someone who can understand my issues" and 2), "Nobody really seems to have viable solutions."
And why not? Traditional marketing, it’s methods, it’s tactics, it’s results, are all pretty much messed up, outdated, and too costly.
Inbound is the way to generate positive marketing ROI for your construction company. If you’re a savvy marketer, you’ll want to see how much you can budget for inbound before you pull the trigger. Rather than use an online calculator, we like to schedule a 30-minute consultation. (Find out more here.) We like to know about your company and your goals. Then we use a tool that MIT developed to analyze your marketing ROI and advise accordingly.
How to Forecast Marketing ROI
Step 1) Key KPIs
You’ll need the following website KPIs before you can do any reasonable budget forecasting:
- Website traffic per month.
- Current leads acquired through your website per month.
- Customers acquired per month through your website.
- Average Lifetime Value (LTV) of customers.
- Cost of Customer Acquisition (CAC or COCA).
Step 2) Fine-tune the data
To arrive at LTV, you’ll need to take your average recurring customer purchases, multiply by the number of time units (months) X your gross margin as a percentage. If you have non-recurring purchase or only non-recurring, you’ll need to factor those sales in also. Simply factor both recurring and non-recurring separately, and then add them together to get your LTV.
To arrive at CAC (COCA): Simple formula: Total annual marketing spend / number of customers acquired from that spend.
Step 3) Set Goals
The basic inbound marketing mechanics involve taking the number of customers you currently acquire through your website and asking yourself, “How many more would I like?” This main goal will drive the tactics of the entire inbound engagement.
Step 4) Health Check-up
If your LTV is significantly higher than you cost to acquire a customer, you probably are in good shape. But if the two numbers are similar, you will not become healthy no matter how many new customers you acquire. To fix, you’ll need to do some conventional things like assess the value of your offerings, raise prices, or cut or reallocate marketing spend. This is why inbound marketing is rapidly catching on. Leads are simply cheaper to acquire; you can do more with less.
The ratio of customers acquired and your cost to acquire them is your marketing ROI. For example, if it costs $100 to acquire one customer who has an LTV of $500, your overall ROI is 500%. If your lifecycle is more than one year, you'll want to look at annual numbers too. Smart marketers will want to track ROI of individual channels and campaigns within those channels, as well as track what “fuel” is driving those campaigns (blogs, social, premium content, CTAs, etc.) These things are the nuts and bolts of maximizing marketing ROI for your construction company.
Step 5) Calculate Marketing Budget for Inbound
Using CAC (COCA) as the KPI barometer, the formula is simple:
Annual CAC X Annual goals for new customers = Inbound marketing budget.
For example, if you have an LTV of $500,000, a CAC of $10,000, and want 2 new customers per month:
$10,000 X 2 = $20,000. You should plan on spending $20,000 per month to acquire $1 million dollars’ worth of customers per month.
If you think these numbers represent an absolutely absurd ROI, you’re right. Hence the scramble to execute inbound marketing. Keep one thing in mind, however, those leads that come in through the top of the funnel will need to be nurtured to the bottom on the funnel where they become customers. So some weight on getting the budget to produce depends on sales’ closing capability. But no matter how you stack the deck, inbound is a fantastic marketing investment!