Tracking the actual return on investment for advertising dollars, or TrueROI, is a task that has had online marketers perplexed for quite some time. It's easy to take the final revenue numbers and divide them by the amount of money that was spent marketing. But how do you track that revenue back to the source of the sale? How do you know which marketing sources are working and which ones are just consuming the marketing budget with no return?
How much should you spend to acquire a new customer?
This is a question many small to medium sized businesses seem to struggle with when determining their marketing budgets and goals. Once you know what a new customer is worth, then you can weigh the acquisition cost versus how much they are worth and determine if you are really making more off that customer than you are spending to get them in the first place. Unfortunately, for small to medium sized businesses, determining what to spend on acquiring new customers seems to be a mix of guesswork loosely grounded in the experience of the company and the biases of the individual doing the analysis.
Determining Revenues
In order to determine what you should spend on acquiring a new customer, you first need to determine the value of a customer to your business over a period of time. All of the revenues less all of the expenses per customer will provide you with this customer’s value to your business.
Quantifying Expenses
Once the revenues are derived for each customer, you'll need to determine the expenses associated with your customers. Expenses may include fulfillment, customer service, cost of goods sold, promotional expenses, and the cost of processing each transaction.
The Challenge of Gathering the Data
The hardest part for calculating the lifetime value of a customer is gathering the data. If you can get access to historical sales and accounting information and you’re good with numbers and some light statistical analysis, you can usually average out or extrapolate the customer data. However, most people in small to medium sized organizations who are interested in this data either do not have access to it, cannot parse it into meaningful information or do not have the skills necessary to translate the data into a meaningful customer value. Larger companies that do have the means to do so, often have technical solutions or staffs dedicated to the interpretation of data for deriving the value of a new customer to the organization.
The ValuLogix Solution is the creation of an online tracking solution dedicated to tracking lifetime customer value by customer source including affiliates, search, display advertising, social media, traditional media, telemarketing and direct mail. We wanted to be able to track everything relating to the value of the customer and then use this to predict the value of future customers so we could determine the success of our marketing efforts methodically and scientifically. We could look at a wide variety of metricts and determine which customer sources were really driving profits, not just sales. And not only could we do this in real time, but marketers could use this software easily and it is as easy to implement as placing pixels for Google Analytics.
What ValuLogix can do:
- Determine Your Customer Value Broadly and Specifically by Customer Source
- Predict the Value of New Sources of Customers Faster
- Reveal Bad Affiliates
- Show Trends In Your Business Over Time
- Give you Insight Into The Revenue Drivers of Your Business
- Show How Changes to Your Web site affect Profits
To find out more visit: http://www.ValuLogix.com
