A “closed loop” in marketing is created when we launch and track the effectiveness of a marketing campaign and then use the data and information gathered during the exercise to improve the effort the next time. This creates a complete “loop” of information that we are able to analyze, learn from, tweak and repeat. Keep this idea of a closed loop marketing in mind when launching advertisements, digital programs, email and direct mail campaigns – and pretty much everything in and around marketing.
Ok, so how does this work in practice?
Let’s assume you want to invest $10,000 to promote your product or service and by the time you finish spending the money you’d also like to be able to assess the return on investment (ROI) that your initial investment generated.
Let’s also assume you set up an ad-delivery platform or Ad network (maybe Google AdWords) to reach prospects within a target demographic or within a specific location. And that you have some sort of Web Analytics tool to track and analyze website traffic – something on par with Google Analytics. And that you have a CRM (something like a Salesforce or Pipedrive or Insightly or other) to track sales efforts and pipeline activities.
When your ad is shown out on the Web, it is counted as one “impression”. When someone clicks on the ad, it’s counted as a click-through and you are charged for the price you allocated for that ad (in your ad system).
Let’s assume you run the same ad campaign each week and end up with 200,000 impressions and 1000 click-throughs (at $1 per). You’ll spend down your $10,000 over the next ten weeks. You know that your $10,000 investment delivered 10,000 click-throughs to your site at a dollar per. Great, but was this a good channel investment?
To determine if this was a good (or bad) investment, you’ll want to make sure that all 10,000 click-throughs landed in the right place – a landing page you set up with clear call to action. (Remember, when you initially created the ad, you designated a URL that all the click-throughs would go to. You used a demo request page so you can now see there were 10,000 click-throughs to the demo landing page. Great! Good work!)
You go to your CRM and learn that 1000 demo forms were filled out and that Sales followed up with every demo request and were able to generate 25 quality meetings from the effort. Those 25 meetings turned into five product sales. If your product costs $10,000 (each) you generated $50,000 in revenue from an initial investment of $10,000. That’s good news (you think), but was it a good investment?
To determine this, you’ll need to do even more investigating. Let’s say that each unit sold is $2,000. This number includes all costs associated with running the business (fixed and variable costs, product development, labor, followup, customer service during the three year product life-cycle, etc). So, now you know your total cost for selling your five products is $10,000.
Add the $10,000 you spent on advertising and your labor for managing that effort ($1000) and you learn that you spend $21,000 to sell five products – or $4,200 per unit sold at $10,000.
Should you continue to spend?
If you can keep your spending to $1 per ad clicked, and if the same demographic that clicked your ad the last time will click your new ads again, then you can reasonably assume that if you spend 1x or 2x on ad spending you will see 1x or 2x results. You might have to increase the cost of the ad to gain higher visibility (to get more clicks) but as long as your cost-per-ad is raised only a little (maybe $.05 or $.10), then you are still within margin.
Maybe instead of increasing spending, you should keep your ad system spending at the same rate and now add another advertising channel to see if you can generate a lower average and spread your risk. If your ad system all of a sudden stops working, you are left without any working system. Though, if you add additional channels that work, then you minimize your overall risk. To see it another way, you optimize your potential upside by adding other channels into the marketing mix. With more than one ad system or network running, you can compare dollars invested in each channel against dollars invested in the others.
Because you have your ad system and analytics set in place (and your spreadsheet or dashboard tying it all together) you can now review all the “levers” that you can adjust to optimize your return.
What other levers are there to move?
Looking back at your example, you notice that your 10,000 click-throughs only generated 1,000 demo forms filled out. Could you somehow increase this to 2,000 (and all other things staying the same you now have 50 meetings and 10 units sold for the same investment). Or, maybe you focus on the 1 in 40 meetings you generated. What if you were somehow able to increase that number to two or three in 40?
What if you could focus the ad in some way to generate less ineffective click-throughs (to lower the overall ad cost) but increase the number demo forms filled out. What if you could also increase the percentage of meetings and the percentage of products sold?
(1) Thinking about closed loops helps you to understand the full cycle.
(2) There are always levers (improvements/adjustments) available to optimize ROI.
(3) Ramping up spending isn’t always the right first step to more sales.
(4) You might be spending yourself right out of business.
CHRISTOPHER MENGEL brings over 20 years of insights to business owners and talent leaders inside emerging technology and professional services firms to implement new initiatives, develop new strategies for growth, carry out organizational and cultural change, manage complex projects, and fill business-critical roles. Have a challenge you want to solve? Connect with him on LinkedIn and Twitter and subscribe to his posts or contact him.
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