Calgary, AB LANDSCAPE INDUSTRY What’s Your Marketing Return STRATEGIC OUTLINE 2020 on Investment? Is it 3:1?

What’s Your Marketing Return on Investment? Is it 3:1?

BY JONATHAN GOLDHILL, WORD COUNT 1191

What do you know about marketing? Is your marketing working? Do you know for sure? How do you know? These are questions that go through my mind as I’m speaking to green industry business owners because the truth is the many landscapers know little about marketing.

I’m sure some of you are thinking out loud and muttering, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” The truth is though with modern analysis that variance has shrunk dramatically, but only if you measure and analyze.

Marketing requires having some fun, experimenting with it and measuring the results. The problem is most landscapers have little experience in any of these. The fact is that the average landscaper spends 0.9% - that’s less than 1% of their revenues - on advertising and promotion – i.e., marketing. So, with that little spent on it, how much could they possibly know about it?

Recently I shared one of my videos called “Everything You’ve Ever Learned about Generating Leads and Growing Your Business is Wrong” with a new client – a $6M per year commercial landscape maintenance company in California – who came to see me to get help with their marketing. Not surprisingly, my client found the video very informative because it showed our system for successfully marketing a business to generate a larger flow of leads. Prior to watching this video and working together, my client – an intelligent and smart operator - really didn’t know the difference between sales and marketing. Like other clients before him who really couldn’t explain the difference between sales and

marketing, most small business owners combine the fields into a mish-mash of the two, something my MBA colleague calls “smalketing”.

Well, not only are sales and marketing miles apart in the systematic processes required to make them effective, but they need to be measured separately. Selling is about converting leads into customers, so your lead conversion rate is vital to measure. But, marketing is about lead generation cost per qualified inquiry, so the effectiveness of each campaign is vital.

So, how can you make sure your marketing is effective? The answer is by testing and measuring it!

It’s been said “You can’t manage what you don’t measure.” And no statement is truer when it comes to marketing. The challenge is that many forms of marketing don’t all work as stand-alone campaigns. They may require or benefit from some other forms of marketing to support them. For example, my most successful marketing campaign was a direct mail letter sent to a cold list that cost me under $400 to mail and has returned over $75,000 in revenues (and still counting). While the bulk of that revenue came from one single client that had never heard of me, the rest of the revenue came from clients who had heard about me from other marketing efforts, namely my articles, speaking and seminars in the industry. So, the fact that a client whom I was an unknown entity to hired me might have been luck and timing. But, the fact is that I spent a lot of time cultivating an expertise in this community and the rest of that income came from other forms of marketing too. Tough to measure and decide which marketing worked? You bet! But, it doesn’t mean I shouldn’t bother. Whatever your preferred method of marketing whether it’s email marketing, direct mail marketing, social media marketing, pay-per-click advertising, direct selling efforts or something altogether different, the fact is that to be successful you have to try to measure the results you get from it. And, you should have a simple benchmark number to evaluate a marketing campaign’s success or failure.

That number, for many companies, I assert is 3:1. But it will depend upon your business.

Just like you’ve committed to memory 911 for emergencies, 611 for your cell phone provider and 411 for directory assistance, you should commit 311 to memory for guiding your marketing spend. That is, you should require a marketing return-on-investment (MROI) of 3:1 on your marketing dollars spent or, in other words, you need to have gross profit of $3 for every $1 spent on advertising.

Why 3:1? Let’s suppose you spend $1,000 or $10,000 on a single marketing campaign. And, let’s assume like many service businesses your gross margin (or labor, plant and material costs related to that work) is around 45%. That leaves you $450 or $4,500 to cover your overhead,

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profit and marketing campaign costs. Well, if your marketing costs are one-third (33%) of your gross profit dollars then this will leave you with 67% to cover your overhead and profit, which we’ll allocate equally to overhead and profit. With this methodology, there’s enough left over to risk and reinvest in your next marketing experiment.

Depending upon your business model (e.g., one-time, construction revenue vs. recurring, maintenance), you will want to choose how you measure your MROI. One basic formula for a construction company might use the gross profit of the campaign as follows:

Gross Profit – Marketing Investment Marketing Investment

Whereas a maintenance or recurring revenue type business model might use the Customer Lifetime Value (CLV) where CLV is a measure of the gross profit generated by a single customer or set of customer over their lifetime with your company:

Customer Lifetime Value – Marketing Investment Marketing Investment

The key here is to decide what to measure and focus on campaigns that deliver the greatest return on investment. Once these numbers are obtained it’s really nothing more than a simple algebraic equation you can create in your spreadsheet program to forecast how many leads you need to breakeven. Here is one example of a formula you can use with the data you’ve gathered above:

(Ad Investment / Average Gross Profit per Sale) / Lead Conversion Rate = Leads Required Now with numbers: ($2000 / $2000) / 20% = 5 Leads

If the advertising medium for the example above cannot show that you will have a reasonable expectation of receiving 5 leads on your $2,000 spend then it’s probably not a good investment.

The point here, of course, is not to breakeven. It’s to establish a minimum MROI threshold … AND … to keep experimenting until you find the best results.

Note: Having consulted in over 125 different industries, it still amazes me how little landscape business owners spend on marketing. PLANET’s Operating Cost Study and another proprietary financial database illustrate this point. Most of my landscape clients spend 3-5x more on their marketing than their typical green industry competitor. And, the results work. According to proprietary data from the largest financial data company in the U.S., the average landscape company grew at 14.85% during this past 12 months. Meanwhile, my clients grew at an average rate of 36%.

Think marketing may work? If so, here are your next steps:

“If the advertising medium for the example above cannot show that you will have a reasonable expectation of receiving 5 leads on your $2,000 spend then it’s probably not a good investment.”

1. E stablish a MROI threshold for your entire budget and individual campaigns. 2. S et a marketing budget in accordance with your MROI goal 3. T est and measure each campaign by tracking the source of the inquiries and leads 4. H ave fun! 5. Seek help if you are stuck!

This article was originally published in the October 2014 issue of Landscape Management.

Jonathan Goldhill, Founder/Head Coach of The Goldhill Group, provides strategic business, marketing and sales coaching/ consulting to owners, managers and salespeople of growing companies in the green industry. Learn more about his company at www.TheGoldhillGroup.com.