Answer to the Marketing Brain Teaser from Last Entry

Help me. I posed a question to all readers, got a ton of responses, some of which were actually correct and devoid of curse words. ALL were interesting. Very cool to get different perspectives.

Summarized question: “There are four elements in your ‘Marketing Equation’. Two mentioned in the article were ‘incoming leads’ and ‘conversions’ (or commonly ‘closing ratio’). What are the other two?”

Before you read the answer, my intention was to gather the four BIG elements for those of you not running your marketing by formula. I said in the article, “other numbers are just fluff”.

Since I uttered that statement, I’ve been asked to step down by Democrats, Republicans, and the Sham-Wow guy, who is now the Slap-Chop guy. I regret any convenience I may have caused and humbly apologize to everyone except the Yellow Pages.

Admittedly, there ARE other meaningful numbers and I’ve given credit where due.

Here are the winners AND numbers to know in your Direct Response marketing formula, plus another highly insulting remark to the Yellow Pages.

1.Leads generated– only attributable to Direct Response marketing. Direct Response ads have – as their name implies – a lead generation component and are accountable thereto. If you sent out a Holiday Card or TOMA or Retention piece and were hoping to count “leads” as a result, you may as well plant a strawberry vine and start looking for cumquats.

2.Leads converted – Often based on #1 per campaign, but also as a general measure of closing ratio for all leads. I do NOT like blending “all leads” together since a customer calls in as a lead with a 70-80% closing average vs. a ‘first time caller’ with a 30% closing average.

3.Cost per lead – This figures in the media and fulfillment costs and as such, gives you a baseline for measurement. Advertising during the SuperBowl might get you 1,000 leads, but the CPL will likely be rotten. This figure generally runs between $75 and $200, still a potential loser at the lower price (insolvent unsellable prospects) or very profitable at the higher figure. Has to do with transaction size and of course…

4.Profit per sale (I’d have accepted ‘transaction size’ too, since that’s way easier to figure, is more part of marketing than operations.) People often ask, “How many leads should I expect from this campaign?” and there are general numbers (1% from Direct Mail a long accepted but now shrinking ‘standard’) yet even these overlook this more revealing figure. Not only is the list smaller for an $8000 bath remodel for example, it’d take far more $79 drain cleanings to make them equally profitable.
The above is why it is very important to know and use the “Break Even Rate” in direct response marketing, which is revealed below, but FIRST…

The Winners Circle:

There were several correct answers yet the most concise AND correct answer goes to Chris Kowalski who had a 7 word email that said, in its entirety:

1.Cost per lead
2.Profit per closed lead
I like it when people get to the point! All who submitted a correct answer will get a copy of Marketing Secrets. Hope you’ll write us a review!

Yet since I’m completely unfair, biased, and make up the rules as I go along, I’ve decided to award 2 honorable mentions –

The Runners Up:

1.Keith Calicoat wrote, “Decrease acquisition cost per customer and raise the frequency of transaction per customer”, which gets partial credit. Keith also put in, “If I win, I don't want the hot dogs!” Fair enough. That makes two of us.

2.J.S. Woolery from Home Energy suggested “raise average order size”, which is a great way to increase profits NOW from virtually every sale. I still contend that most contractors could increase prices by 10% today, not lose one customer (okay, the cheap ones) and put the entire bump on your paycheck.
BONUS feature today is the Break Even Rate Formula:

A/B = C

(C/D) x 100 = E

(E/F) x 100 = Break even response rate


A= Cost of Direct Response campaign

B = Profit per job/service offered in ‘A’.

C = Minimum job/services needed to break even

D = Average conversion (closing rate) on leads for this type job

E = Number of total leads needed to break even

F = Number of pieces mailed/audience


Obviously, the goal is to exceed “D” and “E” by the largest number you can. Now you know why the combination of these factors rules your fortunes.

I recommend a break even rate on ALL Direct Response ads you do for 2010. But then again, I recommend the slap chop, but only if the Yellow Page ad rep’s finger is in close proximity.

Have an awesome day. Let us help you make it even more of one!

No Private Investigator

One of the biggest complaints I hear from contractors is, “I just need more leads.” And for the most part, the more leads you get the better. (There are negatives to “too many leads”, but I’m getting ahead of myself which isn’t that hard to do.)

Anyway, absent the need for more leads, we’ll assume you’re getting leads at rate ‘x’ and converting ‘y’ to sales. Ridiculously, MOST contractors focus way harder on the ‘y’ (closing or conversion rate) than increasing ‘x’.

The trick to massive sales growth is increasing both.

NOTE: There’s a ‘third’ and ‘fourth’ element in this equation that are the ONLY numbers worth following in your sales stream. Most everything else is just fluff. The next 10 people to tell me EITHER of those will win either a) A pack of unrefrigerated hot dog wieners or b) A first-class marketing book that I just happened to write. If you choose ‘a’, I’ll assume you have a copy. The email link to send your answer is found after the ‘click’.

So, delving into your current leads – the ones you’re getting today, right now - there are two questions to consider:

1. Where did they come from? (Media source, which includes your own database.)

2. What happened after the call?

About 70% of contractors DO NOT gather the source. Since all marketing should have an ROI, this is like not asking the bank about the interest rate. This economy rewards prudency. The days of “guessing” with unproven marketing are over.

As far as “What happened” after the call, slightly more than 70% only know TWO things: It sold. It didn’t sell. And that boys and girls, is flat out silly.

I’ll get right to it:

The five things are –

1.Sold: Transaction size? Previous/new customer? Attempted upsell? Attempted Agreement sale? Equipment survey? (That is, do they need IAQ, adding a bath, discuss security lighting? etc.) The survey alone is free, leads to far more gold from the database in this ONE step.

2.Sold: Follow up procedure. Thank you call with referral bump. Thank you letter with referral bump.

3.Sold: Relationship and referral procedure started. (Added to hard copy Newsletter, ezine list.) A 30 day schedule of recontact becoming more prevalent, but if you have none, every 90 to start.

4.Didn’t sell: Reason? Elimination of reason? Set follow up appointment? Incentive to call YOU back? Clearly state next action step.

5.Didn’t sell: Result of follow up contact. (Minimum of 3: >Phone call plus email. >Letter/postcard. > Phone call. If remains unsold, then low cost relationship procedure started. Email reminders, always included in direct mail campaigns.
If you can just change your response to the outcome, you can generate far more sales with very little effort or out of pocket costs. You’ve already PAID for the lead, why not extract full value? (Yes, I’m cheap.)

And now for the promise to improve your CSR’s performance today -

Tracking leads is important because if not, you might be wasting money on dud ads. It’s so easy to do. All you have to do is instruct your customer service representatives (or whoever answers the phone and fills appointments) to simply ask the customer how they found out about you.

You may be shocked by what you discover. What media brings the best ROI? How strong is your word of mouth? How many referrals are you getting now? How can you triple that?

Even better, you get a chance to prove your superiority on the phone. First, I make no secret that I hate automated attendants. The world in fact, would like to strangle the next auto attendant they see.

Yet even if your callers aren’t forced to press buttons for five minutes or aren’t on hold for listening to some top 40 station – a CSR can still blow it. Here are 3 things your customer service reps should always avoid saying:

1.“Well, you’re going to have to…” No. The first thing the customer is going to think is, “Come on! I don’t have to do anything!” Ask nicely. Try, “In order for us to provide you the best service, would you mind…” or “Could you please provide me with this information so that we can be sure to omit any possibility for a mistake?” Let the customer know that he or she is helping to facilitate the fixing and they’ll be much more likely to respond with something other than a quick hang-up.

2.“I’ll try…” Don’t try. Either say you’ll do it or tell them no. If you don’t give huge discounts on new systems, then say you can’t do that at present. Don’t say you’ll try to get them a discount if you know it won’t happen! Customers resent a lack of commitment, so don’t show that weakness.

3.“It’s against our policy.” It’s hard to dodge this for one main reason. The company policy is there because it needs to be followed. Just don’t use this phrase. Customers can’t stand to hear it and it has become one of those horrid business clichés that CSRs use as a scapegoat to avoid extra work or explanation. You owe the people who pay your bills (your customers) an explanation. At the very least, substitute this worn out phrase with words like “our best procedure” or “proven approach”.

Okay, I’ve given you more than your money’s worth for today (especially considering the price) and ask you to pick an action to go implement.

Soon you can be reading a profitable book or have a nice lunch to send your competitors.