We recently set out to figure out how profitable we were on the services we offer. We knew we were bringing in more revenue than our expenses, but wanted much better clarity in order to prepare for real growth. Were we getting ROI on the services we provide? How much? Which services were more profitable than others?
So, we set out to figure out what ROI we were getting on on every piece of work we performed for our clients. What we also learned along the way was how our own marketing ROI was impacting our business.
Let me share with you our process and how it lead us to realize how much we needed to measure marketing ROI.
Cost of Skill Sets & People
First, we had to calculate the hourly cost of each individual on our team. And given there are about 170 available working hours per month this helped us figure out a fully-burdened cost per hour for each person on our team.
For example purposes, if a paid search analyst costs you $5,000 per month / 170 hours, that equates to roughly $29.41 per available hour. We also needed to include 20% overhead on each hour or $5.88. This gave us a fully-burdened cost per hour of $35.29.
Price of Each Service
Next, we looked at the skill sets each person on our team who provided various services to clients and how much time it took them to deliver that service each month or on a one-time or custom basis.We even included the cost of the software our team members use to serve our clients.
In this example, the person who cost us $35.29 per hour took roughly 10 hours per month to deliver this particular service or $352.90. We also added an additional $85 per month for the software that person used to deliver those services, a total of $437.90 per month cost to us.
In our example, we were only charging $400 per month for this service – a loss of 37.90 per month on each client using this service. So, if our sales team sold more of this service we would be losing money faster even though our revenue was increasing.
The Importance of Inbound Marketing ROI
We were getting a negative return on our investment to provide this service. Period. It was all right there in black and white.
So what on earth does this have to do with your marketing ROI and SEO? If you are not looking at what you are spending for the labor and tools to market your business and the acceptable return they are giving your business – you may be losing money — or missing out on opportunity.
Let me give you a basic example. We recently started working with a company that was getting roughly 10,000 new visitors per month, 650 registrations (6.5% conversion) for their service and 500 of those registrations were turning into customers – a drop rate of 23% (150 per month).
The price point on their service was $75 per customer. This meant they were losing about $11,250 per month just in dropped registrations. This was not taking into account any opportunity cost (loss) from added improvement in the type of traffic they were bringing in and registration conversions.
The Conversion Rate Optimization (CRO) testing along with some basic Search Engine Optimization (SEO) we wanted to begin with them would cost them $1,900 per month for 3 months, a total of $5,700.
We set out to do the following for them.
- Increase registration conversion by 1% (750 registrations)
- Decrease drop rate to 20% (still 150 drops per month, 600 sales per month)
- A total increase in paying customers of 300 over 3 months (100 per month), which would equate to $22,500
The ROI they would receive on our services 3.167. This is solid ROI for marketing spend, although it is just the beginning. (And in some cases a negative ROI is acceptable for a certain period of time, especially when you are running pilot projects. But more on that topic in future posts.)
Look here to review the definition of ROI to perform your own calculations of marketing performance.