When you’re developing a marketing strategy for your small business keep the ROI in mind. ROI stands for return on investment, for advertising purposes it measures the return on your ad spend. Small businesses have a smaller budget and need to be careful of how they spend their marketing dollars. Targeting the right audience is critical in making the most of your ad spend.
Traditionally, small businesses marketing strategies follow a pattern. Many small businesses make use of flyers, branded cars, newspaper ads, and street signs. When I say small business imagine your local plumber or home inspector. These traditional methods throw out a message to the masses without any refined targeting. Usually, the small business owner will realize that the return on investment using the traditional method ends up being low. I always talk about the “Temperature Theory of Marketing”, for those of you who don’t know what that is let me explain.
Introduction to the “Temperature Theory of Marketing”
The “Temperature Theory of Marketing” talks about the market you are serving and the customer profile of that market. Just imagine a triangle representing the market you are operating in. We’ll Edmonton is the example I’ll be using since that is where I am located.
At the very top of the triangle, there is only a small percentage of the market. These are the people actively looking for your services. These people cost the least to convert into paying customers and they also are your most valuable customers. As we go down the triangle there are more and more people. The more we go down the more it will cost you to convert them, and the less valuable the people are.
Focus Your Efforts
If you send out flyers to a neighborhood or drives his branded car around the city what is happening? The message is simply being blasted to many people. Most of these people have no interest in the service being offered. By focusing on the right customers you increase your ROI. When you spend less to get a customer you drive your costs down. If you are targeting the right people you will also convert more customers. So as a result of targeting, you are both decreasing costs and increasing revenue.
Targeting “Hot Customers”
Fortunately, a small business owner can do just that. The key is that these people are actively looking for your service. So where do people looking for your service usually go? Let’s examine 3 ways to do this.
One way of getting in front of the right set of eyes is to use Google Adwords. The way Google Adwords basically works is that you bid on a few keywords.
If I am a home inspector in Edmonton I would probably bid on keywords like “home inspection Edmonton” and “home inspection companies in Edmonton”. What happens is that every time someone searches a phrase that contains these keywords, if I’m bidding enough then my website will show at the top of the search results.
I only pay when someone clicks on my link and not simply see my link. This means that everyone who clicks on my link is searching for my service. These are all “hot customers” customers at the top of the triangle. I can also use negative keywords to make sure my website doesn’t pop up for certain search terms. For example, “how much do home inspectors make per year?” would be a negative keyword. People looking to become home inspectors are not looking for a home inspection.
Google Adwords is a great way to target the right audience, for those that find Adwords overwhelming there is a much simpler way too. You can simply post your ads on classified websites like Kijiji. Many people who see your ads and respond to it are usually looking for your service too. Another benefit of posting your ads on a classifieds site is that most sites let you do it for free.
The third option of marketing your business is through the use of lead generation sites. The way this works is a site reaches the first page of Google and puts a small quote request form on the landing page. When a potential customer visits the site and puts in a request for a quote you will receive an email. The email can include things like the size of the property, property type, phone number, and address. Unlike Adwords where you pay every time someone simply visits your site and doesn’t necessarily put in a quote request, in lead generation you either pay a fixed amount per lead or per month. On top of that, you can immediately call up that lead and turn them into a client.
Benefits of Lead Generation
Lead generation is a nice way to develop a flow of customers to your business. It works while you sleep 24/7. Depending on what your services are you could be paying anywhere between a few dollars to over $100 in some cases. This all depends on what your customer lifetime value is, and the quality of your leads. As you can imagine a mortgage broker business would end up paying a lot more per lead than a plumber would. The reason being is that 1 client for a mortgage broker is worth thousands of dollars. A client for a plumber, on the other hand, could only be worth hundreds.
When you are looking for a lead generation website to partner with know the difference between exclusive and non-exclusive leads. Exclusive leads mean the website is only sending you the leads and naturally there is a premium you’d have to pay. When a website sends out non-exclusive leads, that means the customer is going to get phone calls from many different companies. With non-exclusive leads, you end up competing with different companies over the lead and naturally you pay less for this kind of lead.
So how do you measure ROI and why should you care? After I first graduated I went and worked at a new startup, while I was there we tried every marketing channel you can think of. We tried radio, flyers, door-to-door, and a lot more. Let me give you a few examples: if you spend $2,000 on printing and distributing flyers and in return, you ended up getting only 1 client that pays you $200 then your ROI is ($200/$2,000) * 100 = 10% (which is what happened when we tried radio and flyers). Remember that these methods target the masses so the conversion rate will be lower.
If on the other hand, you subscribe to an exclusive lead generation website you end up paying only when you receive a lead. If you are paying $10 per lead and you receive 100 leads you end up paying $1,000. Since these are “hot leads” you will convert more than you would convert from the flyers. If you convert 25% of those leads and on average each customer pays you $200 that means that: (25% * 100) = 25 customers. 25 customers * $200 per customer means that you make $5,000. The ROI in this case will be ($5,000/$1,000) * 100 = 500%.
In the first case you effectively paid $2,000 for 1 customer, this was your customer acquisition cost (CAC). In the second case, you are paying $10 per lead and 25% conversion rate. Which means that out of every 4 leads you get 1 customer so the customer acquisition cost is $10*4 = $40 per customer.
From the example above you can clearly see that targeting the “Hot Customers” has a much bigger payoff than blasting a message out to everyone. It’s this kind of marketing that will enable you to grow your business even if you’re on a budget. Get more customers for your home inspection business using exclusive leads services. It will only be a short while before you start flourishing in Edmonton.
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