Business Strategy

26% of Your Marketing Budget is Being Wasted, But Where?

According to a study done by Rakuten Marketing, 26% of marketing budgets are wasted on the wrong channels or strategies. I would argue this number is even greater. Since 2005, I’ve been evaluating marketing budgets and have noticed most brands, over 95%, aren’t tracking the right things. Brands are wasting their money and don’t have the right information to determine where it is being wasted!

The solution to this problem is to identify and evaluate 3 key performance indicators (KPI’s):

  • Cost Per Lead (CPL)
  • Cost Per Qualified Lead (CPQL)
  • Cost Per Customer (CPC)

Depending on your business model, the names behind these KPI’s might vary – for example, if you are running marketing campaigns for hiring staff you might use KPI’s such as Cost Per Resume, Cost Per Application, and Cost Per Hire. The point here is to establish a set of key metrics that represent conversion points in your marketing funnel. For the sake of this article, I’ll use Cost Per Lead, Cost Per Qualified Lead and Cost Per Customer.

Once you’ve established the name of your KPI’s, you need to setup a proper system of marketing attribution for every one of your marketing channels.

Your system of marketing attribution might include:

  • Adding call tracking numbers to your billboards, TV commercials, radio ads, and other traditional marketing channels
  • Adding dynamic call tracking numbers to your website to capture campaign data (e.g. campaign names, ad creatives, keywords, etc.) that website visitors used to get to your website
  • Updating your website forms to capture campaign data
  • Setting up marketing automation to pass marketing data from your calls and website form submissions into your CRM
  • Adding fields to your CRM system (e.g. Lead Source, Lead Type, Lead Quality, Lead Quality Notes, Google Click ID, etc.) so you can track the lifespan of new leads through your sales process

What you add to your marketing attribution system will depend highly on your type of business. The point here is to make sure you are tracking all activity related to each of your marketing channels so later you can evaluate your results.

Now let’s look at how to evaluate Cost Per Lead, Cost Per Qualified Lead and Cost Per Customer.

Cost Per Lead

Volume of Leads / Marketing Channel Cost

To calculate Cost Per Lead, simply divide the volume of leads by the cost of your marketing channels. To properly evaluate the performance of your marketing channels over time, I highly recommend setting up a spreadsheet in the following format.

Cost Per Lead

If you are running complex campaigns with multiple campaigns, you might break down your expenditures for subsets under each marketing channel. For example, you might break down “Google Ads” to the cost total for each Campaign or Ad Group so you can evaluate your Cost Per Lead even further.

Once you have this data, you can run your own charts within your spreadsheet program (e.g. Excel, Numbers, etc.) or use live dashboard platforms such as Klipfolio to pull in this data directly from your marketing systems in real-time. The goal is to generate a view similar to the example below.

Key Performance Indicators

I particularly love platforms such as Klipfolio because they automate the way data is pulled and how calculations are made so you can focus more time on making decisions and less time moving and mapping data from a multitude of marketing systems.

Now that you have a system in place to track Cost Per Lead, you’ll need to connect your CRM, or E-Commerce, systems to track the quality of leads and transactional data which will ultimately enable you to determine return-on-investment by marketing channel.

Cost Per Qualified Lead

Lead Quality Volume / Marketing Channel Cost

Before you can calculate Cost Per Qualified Lead, you’ll need to setup a data field in either your CRM or E-Commerce system that will provide a measure of lead quality. This can be as simple as adding a set of fields called “Lead Quality” and “Lead Quality Notes”.

Lead Quality

As you can see, your marketing attribution system can determine the Lead Source and Lead Type and pass this information into your CRM / E-Commerce system, but to understand the quality of your leads, you’ll need to collect qualitative data from your team.

I highly recommend configuring your CRM and notification systems to make sure your team completes these fields so you can accurately calculate Cost Per Qualified Lead for each marketing channel.

Cost Per Qualified Lead is a critical Key Performance Indicator.

It helps you avoid the mistake of cutting out marketing channels that might be producing a lower volume of leads, but yielding higher quality leads. So many businesses make the mistake of evaluating their marketing leads solely on volume. Once you identify the channel, or mix of channels, producing the highest quality leads, you can make smarter reallocations of your marketing budget to those that are most likely to produce a return-on-investment.

Cost Per Customer

Won Opportunities / Marketing Channel Cost

Once you have the system’s setup for Cost Per Lead and Cost Per Qualified Lead, you’ll be in a position to calculate Cost Per Customer. To do this, you can simply take the volume of your “Won” opportunities in your CRM or E-Commerce transactions and divide them by your marketing channel cost.

Using platforms, such as Klipfolio, you quickly and easily attribute revenue generated from each marketing channel over time.

Lead Status
Lead Value Graph

Obviously, the graphical representations you use to evaluate Cost Per Customer for each marketing channel will vary based on your business. For example, you might use pie charts to demonstrate the proportion of revenue generated from each marketing channel. You might also use a horizontal bar chart to demonstrate the Cost Per Customer for each marketing channel. The possibilities are endless!

Wrapping Up

Once you’ve gone through the steps of identifying your Cost Per Lead, Cost Per Qualified Lead and Cost Per Customer, you’ll be in a much better position to:

  • Know what’s delivering an ROI and what’s not
  • Reallocate your marketing budget to what’s working
  • Make improvements to the strategy and tactics behind each marketing channel
  • Scale your business profitably
  • And most importantly, sleep at night 🙂

There is no doubt it takes work to get to this point. The good news is you don’t have to do it on your own.

About Author

I believe you need to pour all your passion into something that you truly believe in. Marketing is to me what a cabinet is to a carpenter. It needs to be carefully planned, measured and executed using the right tools to get the finished product you want. You live for the end result. You treat your work as a craft, and not a job. Let's Connect →