Sales & Profit
Today, we’re wrapping up a 4-part series on sales & marketing & profit:
- Overview of the “sales & marketing system”
- Setting sales & marketing strategy (the 5 W’s)
- Measuring sales ROI (efficiency and efficacy)
- Using data to drive decisions (the “feedback loop”) [you are here]
Check out the links above to recap previous articles. Our goal today is to improve decision making when it comes to sales & marketing (S&M) efforts through feedback loops.
First, what is a feedback loop?
We measure our marketing strategy with data, then we use that data to decide whether our tactics (actions) and strategy (broader plans) are working or not.
The goal is doing more of what’s working and doing less of what isn’t.
It’s really simple… make a plan, try some stuff, measure how it’s going, then adjust. It looks something like this:
Here are some things to look for when monitoring your data:
1) MER climbing
Reminder: MER (marketing efficiency ratio) = total marketing costs / total sales.
Track this metric monthly and quarterly with a simple chart to highlight visual trends over time. Set a target range based on historic performance for your business (say 10-15% of sales) and 3-12 month performance against that target.
- MER > target range = potentially inefficient spend, investigate current marketing campaigns or sales channels to identify issues
- MER < target range = potentially underinvesting in spend; which could lead to your pipeline drying up
2) Fixed or variable cost
S&M expenses can be fixed or variable.
[Fixed examples: sales team salaries, marketing agencies, billboards or branding campaigns, etc. Variable examples: paid ads, commissions, affiliate fees, etc.]
By tracking these costs as separate line items on your P&L, you’ll get a better sense for what’s working and what isn’t.
In the early (or uncertain) phases, you’ll want to keep more of your spend variable (i.e. tied to sales). Layer in fixed costs as you grow and become more profitable.
3) Adding or reducing S&M efforts
How do you know when to press or when to pullback?
These are loose guidelines, but generally:
- Adding — You’ll want to increase spend when your MER is stable (or decreasing), operations have plenty of capacity for more business, or if your backlog/pipeline are shrinking.
- Reducing — If MER is climbing or you’re spending more money to bring in fewer customers (i.e. higher CAC), then it’s probably time to pullback. However, you don’t want to take S&M spending down to zero, this is how you keep customers coming in!
Tying everything together…
If I could summarize everything we’ve covered into a single running list:
- S&M system connects your S&M plans with the finance and ops side of your business
- Use the 5 W’s (and H) principles to build a simple marketing strategy
- Who = target customer
- What = your product/service offerings
- When = cadence or marketing calendar (including sales “touches”)
- Where = channels to find people
- How = tactics or actions you’ll take
- Create a habit of tracking metrics for all marketing activities
- The best “bank for buck” metrics include: MER, CAC, pipeline/backlog, etc.
- Trends in those metrics are more important than the current number
- Separate fixed and variable marketing costs for a clearer picture of your efforts
- Test, test, test those efforts against your goals and course correct
- Do more of what’s working, and less of what isn’t working