Welcome to Episode #2 of the Fractal Startup marketing podcast.
In this episode, I discuss calculating the cost of your customers – thanks to writally.com for the question
We also cover the other common direct marketing variables and how to calculate them.
We then move onto more complicated offline and long sales cycle tracking – thanks to BenchOn for the question
If you would like to have your questions answered on the podcast, please add your question in the comments section here http://fractal.com/au/questions
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Below is a transcription of the podcast:
|[music] Hi, and welcome to the Fractal Marketing Podcast. My name is Gerard Doyle. And on this show, I take marketing questions from listeners to provide answers so that everybody who tunes in can learn a little bit more about marketing and hope they find some ideas for their business. [music] So in today’s episode, we’re going to look firstly at calculating the cost of acquisition of your customers and other marketing variables like ROI and ROAS and discuss the differences between those two. After that, we’re going to spend a bit of time talking about more complicated tracking models where it might require an offline sale or a long sale cycle and how to relate that marketing money that you’re spending very early on back to that end sale and the customer value. And finally, we’re going to spend some time looking at animation and the power of animation in video marketing and how we can deliver clarity of message through an uncluttered interface. So our first question this week comes from Cass from [inaudible]. And her question is, “How do you calculate the cost per acquisition if your primary acquisition method is profitable?” Good question, Cass. And I think it speaks to one of the problems with marketing is that and like all industries, I guess, is we have a tendency to create a lot of our own words, a lot of our own acronyms, initialisations, and things that just make marketing generally confusing when it need not be. I think back to some of the rules that people like Mark Zuckerberg and Elon Musk employed in their companies. And they just started stopping people from coming up with new acronyms inside the company because it just made life really difficult. But we are where we are [laughter]. And to answer your question, look, it is still possible to have a cost of acquisition particularly even if you’re profitable because it’s only the cost of acquisition is only the denominator in the ROI calculation. So what I’m talking about there is if you’re looking at the ROI of your marketing, you’re looking at the cost of acquisition over the lifetime value of those customers. And that’s what you want to be profitable. But it’s still completely possible of course, and in most cases, you would have a cost of acquiring those customers. So when I look at that I think, “Okay, there’s some really important variables there that we need to understand completely to get your head around marketing.” So as an acquisition marketer, I live and die by these two numbers. And the first one is the CAC which is the cost of acquisition of your customers, so customer acquisition cost, CAC. This is probably one of the most important variables because it’s much easier to get your cost down with your marketing. It’s generally where a marketer is going to be measured. On the flip side, on the denominator side of this equation for the ROI, you’ve got the LTV, the lifetime value. Now, as a marketer, we can impact that. We can attract sort of better quality customers. In theory, they’ll give us a longer lifetime value. So this is the total amount of value or revenue we’re deriving from a customer who comes to our service or our product. So really though, generally speaking, that’s going to be a product manager. And that’s why when you think about growth marketing, a growth marketing or a growth hack team tends to involve both a marketer and a product lead as well as often a developer of the backend to help you. But that pigeon pair of a product marketer and an acquisition marketer is usually ideal. So that’s pretty much the most important thing as a performance marketer to really be measured by. And the reason is that that typically for a startup, or a new product, or a business is there’s an amazing moment. So this is after we have achieved product-market fit. We’ve found out customers. We’ve got 30, 50 happy customers or whatever we’ll define that to be. But what we don’t have yet is a really scaled marketing process and that’s because at the moment when we start, we’re probably spending $2 to get $1 back in. The amazing moment occurs when all of a sudden you can spend a $1 on your marketing and get a $1.10 back. And what that means is your CAC, your cost of customer acquisition, drops down below the cost of the lifetime value. And then what we’re looking at is, okay, what’s that payback period? Now, that ideally is instantaneous in the sense that you’re selling a product, so the revenue you get back from a product is greater than the cost of selling it. For a service-based business, this is a little bit harder. You might be looking at 2, 3, 6, 12 months payback windows, and that has a big impact on the value of our company, the cost of raising capital, etc., etc. But really these are probably two of the most important variables to understand with your marketing, and then the variables that a marketer should on a daily basis be looking at to see how their campaigns are performing. Now, I’ve also mentioned in there the ROI, probably one of the misused terms marketers do. I had a client about a year ago, in a meeting [laughter] who stood up and said, “If another person uses ROI instead of ROAS, I’m leaving the meeting.” And what he meant was ROI, return on investment is a very general [captural?] term, really refers to the whole business. This is whether the business is being profitable really. So I invest this much. Do I get more back? ROAS, on the other hand, stands for return on advertising spend, so ROAS. I told you it was a lot of initializations [laughter] and acronyms. And ROAS is usually the measure of what the market is doing, so this is where you say how much revenue am I getting? So I might be, for example, selling a couch. That couch might sell for $2,000. The actual profit on that might be 500, but I’ve also got other costs as well, be it staff or it could be facilities, accountants, general sort of management overheads. And all of these variables don’t really appear to your typical marketer.|
|As a marketer, I might be doing Facebook marketing. I’ve got no idea what the overheads of the company are. I also don’t know where the other investments have gone, so what I’m calculating is the ROAS. So that’s the total value of the sales, particularly if it’s e-commerce, then I know I can get that back. I know I’ve sold $2,000 worth of goods. However, I might also know that I’ve spent $500 to get it, but typically that ratio’s going to be much higher in needs, be much higher in ROAS because it doesn’t take into consideration all the other cost of the business, so you’ll have a client or it could be your business, and you can still have a ROAS goal. It’s just that rather than it being $1 and $1.10 back, it’s more likely to be $1 in and $10 back, so hope that clears it up. If nothing else, there’s a few new acronyms in there for you to learn. CAC, customer acquisition costs. LTV, lifetime value of those customers. Knowing that is absolutely important. Again, working with the project manager, working increasing that value, makes a marketer’s life much easier. Obviously, if that lifetime value goes up, you’re able to spend a bit more on marketing. And secondly, looking at ROI, return on the investment and how that differs from the ROAS which is return on advertising spend. Absolutely crucial that you get that right. There’s nothing worse than presenting to a client, or a manager, or a boss, or shareholders and getting those two numbers wrong because you just end up looking a bit foolish with your campaigns. The second question today comes from Tim from [inaudible]. And Tim asks, “How do you manage the ROI on marketing spend when the signup decision is not impulse driven but rather a slow burn that takes time to filter through the client’s bureaucracy? I justify it now by calling it brand awareness, but there has to be a better way to make data-driven marketing decisions. Great question, Tim. It’s strange more and more this is the sort of the area of questions I’m discovering as I talk to business owners. And that’s because the two biggest marketing engines available at the moment particularly online but even generally across the whole world is Facebook and Google, and both of these tools are absolutely fantastic for measuring [inaudible] online. They are able to track someone through the whole purchase, but when that sales cycle is a bit more complicated, when there is more involved, it becomes really hard. So to answer your question, look, it’s not easy and it’s kind of the point where marketing consultants step in and really help set a framework for your business. But I’m going to break it into two broad approaches for you, the first one is around post-impression platform tracking and the second is using correlations of indicating variables which is a little bit softer. So I’ll cover the first one which is post-impression tracking first for you because that’s the one I prefer to get to. So what I’m talking about here is normally in marketing campaigns and acquisition campaigns, what we’d like to measure from is a click. A click is that magical moment when you know that someone’s definitely engaged in your ad or your content and come through to your website. At that point, you are able to use whatever tools you’d like to track somebody through to an end purchase and ideally, that purchase happens in the same session but it might happen two or three sessions later, but it makes it quite easy to calculate. If that window is short enough, usually a few days, you’re in a pretty good place. Now what happens is, more and more the way we engage with media isn’t see an ad, click on an ad, make a purchase. So originally ad technology was all based around cookies and cookies were great. Cookies run this ability to [drop user?] a one by one pixel to drop a little text file on a computer or users computer and then if that person came back we could read the browser, recognize that our cookie was there, identify who the person was and go, “Ah. They were the person who clicked on the campaign a while ago.” Now what’s happened over time is that the actual cookie tracking technology has become less and less robust, lots of people are blocking it, but more than that and I think probably a bigger impact has actually been the use of dual devices. People have not only their home computer, but they have their mobile phone, their tablet, and their work computer. So often people are interacting with content at work, going home, sitting on the couch and then purchasing through an iPad. All that means for us is it’s much harder to track and this is where the platform tracking tends to be the easiest for most businesses. Now there are more robust tracking solutions out there but at that level, you’re normally spending enough money that you’ve hired a full-time agency to deliver them for you. So what you do if you are an owner-operator in a small business and you want to achieve this? You ultimately have to leave your marketing in a platform channel. So I’ll talk about– so Facebook, LinkedIn, Twitter, Google. And what you’re doing there is you’re looking at post-impression sales. So post-impression means somebody who has seen an ad and then goes through and makes a purchase. So this is kind of the next easiest level to track. There’s a big difference there. The intent isn’t clear. If I run a Facebook ad and somebody clicks on that ad and comes through to my website and makes a purchase, I’m pretty confident my ad drove the sale. On the other hand, if I show my ad to somebody who it appears in their Facebook feed, they don’t click on it but then they go through and make a purchase. Well, did that ad drive the purchase? What impact did that ad have? It’s not as clear but the great thing is that the person doesn’t actually have to have an interaction. Because you’re on Facebook, you can be on your work computer looking at Facebook, you see an ad on your work computer, Facebook knows who you are, you go home, log back into your tablet. Facebook still knows that that tablet belongs to you; you are the same person. So if you then go through and make a purchase or sign up or do whatever action we want for your business, Facebook is able to identify that and say, “Ah. I know, even though you’re on a different device on a different network in a different location, you are the same person because this is the same Facebook account.” So what we’ve been able to do there is achieve two things by using Facebook post-impression tracking; one, we’ve been able to track between two different devices and two, we’ve been able to track even though somebody didn’t click on an ad. Now Facebook also has some kind fantastic options in there like people who watch videos. It can be a fantastic tool to measure engagement and say, “Well, if somebody watches X percentage of a video, then they must be more inclined to have engaged.” That’s very different to an ad just sort of scrolling past somebody. Now, there’s no hard-and-fast rules. Ultimately, you have to define, as a business owner or a marketer, exactly what you’re comfortable with. But if you’re looking for a rule of thumb, usually, with Facebook, their default settings, I believe, are– post impression tracking is normally set at one day. So in other words, you need to perform some form of trackable action within a day of seeing an ad. Otherwise, we’re not going to attribute it. Whereas, post-click, we’re normally looking at anything from 7 to up to 30 days to say if you’ve clicked. That’s the kind of window we’re willing to consider attributing that person back. Now, attribution modelling is a whole other podcast, so I won’t get too far into that. But to get an idea of how you can measure these things. You can obviously extend that post impression, but it becomes harder and harder to actually decide what’s going to be working. So my advice to most small businesses is use each of the platforms, Twitter, Google, Facebook, whatever you happen to be using, LinkedIn, and do look at post impression as a way to see if your content or your ads are engaging people and they’re converting. If you want to get into attribution modelling, I’ll wait for another question on that. But probably the easiest way to do that is to have a look at what’s built into Google Analytics. Their solution’s actually quite good, and there’s some great models pre-built. So the second, I guess, answer to your question, and this is probably I think where you’re really coming from, is what about if we don’t really have that kind of control? What if I’m doing marketing that might be writing an article on a news site or newspapers or press or radio? All these kind of very normal things that you know are doing the right things for your business, and they’re building your brand as you say in your question. But is it really driving my business forward? Well, the sad, I guess, fact is we don’t know. And that can be tough for people to sort of, I guess, deal with as a business owner because you do want to know where my money goes– where all your marketing money goes.|
|We’ve kind of been spoiled as we’ve been moved into this digital marketing age where we got used to the idea that, “I know exactly what I’m getting back for my marketing money.” Well, we’ve kind of gone past that now, and we actually have to go a bit old school in the way we think about things. So by going old school, what I mean is going back to that point where– the famous quote that says, “I know that half of my marketing’s working. I just don’t know which half.” Well, this is where most large retail brands find themselves. So traditional advertising through TV, radio, press, PR, there is no direct line of ROI or [ROE S?] that someone’s able to calculate. You ultimately have to go with gut feel. And that’s why sort of the old-school marketers if you like, they’re still a talent out there that needs to be fostered and preserved. And I think, to a certain extent, that skill set’s being bred out of us by this digital age. And it’s only now that, for a lot of industries, the competition’s so tight that skill set’s coming back into its own. So what are we looking at here? Well, we can probably work at how we need to tackle this by thinking about the way that TV advertising has traditionally been measured and people have made their purchase decisions. And to get this right, you really need to go and understand who your profile of your target customer is, the persona, who you kind of imagine that person would be and spend some time looking at where they’re likely to be. Now, old-school TV, you typically use offline survey-based metrics, like it might be Roy Morgan surveys, build profiles, get an idea of where that person is and what kind of media consume and how they do it, which is great. But for the purposes of being a startup or a small business, that’s usually well outside the range of what you’re able to do. My suggestion is always to look at Facebook. Digital marketer [first?]. That’s where I’m going to go back. But the data that sits behind Facebook these days is absolutely amazing. If you’ve installed the Facebook insight Pixel onto your website, you can start to get an idea of who the people are, looking at their interests, their age, their demographic. You can look at the other kind of pages, the celebrities, the interests, the restaurants that they might like. This kind of data is available as marketers. So my tip there is definitely install the Facebook insight pixel, and you can get an idea what’s happening. Getting back to your question, when it actually comes to buying that media, when you’re doing a media planner for TV, you actually start looking at things like [inaudible] all the breaking points. And this is kind of like how many people are watching your show, but media’s purchased in TARPs. So this is target audience rating points. And what we’re talking about there is the media buyer who’s working to a plan for a marketer for a big client is actually are interested in how many people are watching your show who are actually their target customers. So what I mean by that is they don’t really value– there might be a million people watching your show, but if only a hundred thousand of those people are their potential customers, then they value the media by the hundred thousand, not the million that they’re actually seeing it. Why is that important? Because ultimately, the marketers have done their research on who their customer is. They’ve done their research on where they might be looking, what kind of consumer information, what media they’re consuming. And that’s where they place their ads. Now, there’s a lot of [inaudible] behind that. You really have to follow your instincts and see what’s happening. That in itself is probably going to be [laughter] hard for you just to reconcile with yourself. So the trick at this point is to start putting soft KPRIs in, leading indicators in that we start to draw correlations between end business outcomes. Now, go back a few years. And generating likes on Facebook was seen as being very much like a vanity metric. However, where it really resonated and why it took off with businesses and why they built up Facebook audiences is it’s a general recognition that people who interact with your brand, people that see that, it’s a leading indicator. So it is possible to say that the number of fans on a Facebook page is in some way correlated to the size of that business or the audience or potential size of that business anyway. That’s one variable, and it’s a bit of a weak one because it’s kind of being bastardised by people sort of buying likes and becoming fixated on how many people are liking their Facebook page. But we can look at other elements like what’s the total number of minutes or hours our videos are being consumed on YouTube or Facebook or any other media? What’s the total number of clicks we’re getting, the number of impressions we’re seeing, the brand mentioned? These are all indicators that say what we’re doing is going the right direction. One of my favorites is actually tracking the number of brand searches to your website through Google. So to do that you might say, “I know that my brand is increasing, getting more interested in the marketplace the more people who search for me on Google.” So for example, you could run a Google Adwords campaign just bidding on the keywords [inaudible] or mispellings around that, look at the number of impressions that your ad’s being served up to. It won’t cost you much for the click. In fact, it’s probably a good thing to defend your brand and control that path. But what you’re going to collect is insights into the number of people that are searching for your brand even if they don’t click on your ad. Those searches will indicate brand power. So that’s a really cheap and easy way for you to look at whether your brand is taking off. Now, can you correlate that exactly to new business? No. But it tends to be a great way that you can measure potential future success. Other areas you might want to look at is obviously indicators like visitors to your website, brand mentions on external websites. They’re all soft KPIs, but what we’re trying to do is map these softer KPIs and say, “Well, this is leading through to a greater business discovery.” And you’ll get more faith in the model the more confident you are that where you’re placing your brand is in front of the right eyeballs, the right– all the people that you’re actually trying to target. So it doesn’t give you a perfect answer, and I don’t think there is a perfect answer for this. There’s a lot of [inaudible], and there’s a lot of belief in what you need to do. But the more you can establish robust soft KPIs, indicators, whether it be leads or phone calls, all these element and so you’re [inaudible] to website visitors. These are all the soft KPIs I’d like you to build in– for you to build into a model to build some confidence that yes, okay, you might only be doing three or four enterprise-level sales on a monthly basis. I don’t really know what that is. So you need higher volumes and higher numbers to sort of get some statistics behind. So these are all the kind of KPIs you should be looking at. The other key area I’d add is anywhere you’re able to grab data and that data being sort of broken into three broad buckets. You’ve got primary data which will be email addresses and phone numbers. If you’re collecting those, they’re primary data points that mean that you can identify a unique person and also find them again on the web at any different place using custom audiences. The secondary level of data is people who like or follow. So this is your likes on Facebook. This is your followers on Twitter. And the tertiary level of data which is the least robust is the anonymised cookies, the anonymised pixels, and people who’ve clicked on ads in Facebook. But if you start putting these three levels of data down and you start to consider these data points to be crucial value-add variables and KPIs in your business or assets to your business, that’s when you’re going to get a really good idea of, “Okay, I’m definitely growing my audience that I’m speaking to.” And whilst it might not represent a pipeline in the traditional sales sense, it does represent an audience that is willing to listen to you and you’re able to reach in another way. So if you think about those pixels and those three different data points and you value them differently, they can be great ways for you to indicate future revenue and growth of your business. So I hope that helps. Really tough question, I’m not going be able to answer it absolutely perfectly. But hopefully, I’ve given you a few nuggets and ideas there. And rest assure. You’re not alone. Every business that’s out there that has a slow sales process is wrestling with those ideas because they can’t track end to end. But there are proven techniques from old-school offline marketing that work. And the good about it is it’s not as cut and dry as pure online acquisition marketing. There’s a bit of art. There’s a bit of [inaudible] there which yes, makes a bit harder, makes it a little bit more uncomfortable. But if you get it right, there’s a lot more value in your business. And it’s a lot more dependable as a brand position. So finally, I just want to have a quick look at the idea of using animation in your online videos be it ads or explain the videos. I was inspired to sort of look at this today and [inaudible] question but by searching through LinkedIn during the week. And I saw an article on LinkedIn Pulse written by Sheldon of Big TV– sorry, BigFish.tv is the head of content there. He’s got a great post, and I’ll link to that in the show notes where he’s talking about the power of using animation in your videos. And I think he touched on a really interesting point which is this idea that you can get quite distracted when you do a video when you use real people. I don’t think this is exactly his point, but this was my take away from what he wrote. As humans, we’ve sort of evolved around this idea that we make general assumptions, and we sort of say we recognise people. We have that sort of inbuilt human brain that learns from previous experiences. And what that means is how we relate to people is often how they look in all the information around them. So a traditional video, I’ve got background, I’ve got noise, I’ve got lots of movement. I’ve got these wonderful little idiosyncrasies that could be in the person that they’re interviewing in the video. It could be the subject of that video could be an actor. And the thing is my subconscious is amazingly powerful at interpreting the sort of the hidden message behind those people. And that hidden message in what they’re saying particularly if they’re an actor might not be entirely compelling. Now, on the flip side, animation doesn’t suffer from that same problem. Animation is able to deliver visually simple stories that are easy to understand. So all of a sudden now I can’t look at this like turn up in the eye and wonder if the person’s being a little bit sneaky or whether they’re holding back some information or can I tell if there’s something going on there? I’m actually looking at animation which is naturally going to be simple, but I’m able to focus on the audio a lot more. And the audio still portrays emotion. The audio still has the message in there. But the video, in a weird way, keeps my brain engaged visually enough so that I’m really listening to what’s coming through. And there’s a fantastic example that Sheldon puts there of a video that he created for the Queensland Ballet. And the emotion behind it is really clear. The animations are quite simple. I’m not distracted by costumes or the people. I understand what ballet is, I can see the movement, I can see the story and it’s coming through. The background and all the other colours that are flying around the screen are far more engaging. And I think this is something that we’re seeing more and more. If you’re like me, you’re seeing a lot of videos, influencers on LinkedIn holding cameras. And the problem is, there’s a lot of movement, there’s a lot of noise. You tend to judge the person, rightly or wrongly, by what they look like, how they’re acting, how they’re moving around, whether they’re paying attention. And animation doesn’t suffer from that problem.|
|The other great thing about an animation is it’s so much faster to produce. You don’t have to do as much with lighting, you can do a lot more in editing. And I can still do a shout-out here for one of the clients and one of the companies I work with called Biteable. And this is exactly the space that Biteable operates in. They create amazingly beautiful and simple animations for explainer videos that allow people who sign up to it to tell their story in a really simple way. And that’s often the case; the simplest stories can be portrayed in just a few letters, a few words. And the animation is a way to engage the person’s brain and keep the audience paying attention. The words can be quite simple. Sheldon’s example, they use spoken word over the top of the animation. Biteable more uses text, a bit like Twitter. You think you’re being restricted down to a small amount of text. But I think the amazing thing is the way that what would seem like a limitation actually empowers you to tell a much more powerful story. So I’d really recommend checking out both Biteable and some of the videos – you can get a free account there, it doesn’t cost anything to try that out – and also head over to Bigfish TV and have a look at a couple of the animations they’ve got.|
|The ballet one is hugely– so that’s [inaudible] bigfish.tv. The Queensland Ballet is quite an emotional and easy piece. And then there’s a second video they’ve got called Family Law Systems Exposed. That one’s much more emotional. And I think the power in that one is that you’re able to hear the voice. You can hear the person who’s narrating’s voice breaking as they struggle with the pain of the story that they’re telling. The animation isn’t of them. I don’t know what this lady looks like. I can’t see her face, but I can hear her voice, and that makes it easier for me to relate to because I don’t have the ability to judge her physically. I don’t get to look at her and make some assessments about who she is or what she might represent. I’m just listening to her as a person and I’m seeing the animation that brings that story to life. So if you’re struggling with how you’re going to tell your story, if you’re struggling with your website and you’re running copy and there’s lots of information there, I think animation is a fantastic way to explain a message or basically to tell a story. Definitely take a look at it. There’s obviously varying levels of it. You can go hire a great agency to produce top-notch work or you can go use one of the free online tools.|
|But I think there’s a rising use of animation and if you want to look at the best examples of that it’s just the rise and rise of Pixar movies and other animation studios, and how well those movies are now grossing because people are able to identify. It doesn’t matter what country you’re in, you can relate to two monsters that are blue and green because they’re animated. They’re not real people. Whereas any other movie you might like to shoot with actual human actors, there’s always going to be that slight judgement that occurs. I’m taken to a thought of a movie recently that came out around the Great Wall of China, but with American actors in it. It just grates you the wrong way. Well, grates you anyway. So take a look. Have a think about how you– what story you want to tell. And maybe think about using animation as a way to get around that need to hire talent and have along production crews and big overheads in producing what really should be something that’s fairly cheap to produce.|
|[music] Thanks for listening to that latest episode, guys. I’m just got two quick favours to ask of your here right at the end. Firstly, if you have any questions, please shoot them through. This podcast only exists because I answer questions that listeners send in. So if you head along to fractal.com.au/questions, that will redirect you to the latest episode and you can drop your questions down there. Those questions you submit become the basis for each episode. So if you’ve got a question around SEO, paid search, growth hack marketing, PR, brand positioning, market segmentation, anything you might like to know and it’s going to help your business, drop the question down there and I’ll try to answer on the next episode. If you don’t have any questions, that’s absolutely fine. The other thing you can do is head on over to fractal.com.au/subscribe. Subscribing to this podcast not only delivers each episode straight through to your smartphone, but it really helps me reach a bigger audience all the time. That subscription really helps me out. So if you can do that, I’d really appreciate it. Thanks a lot for your time, again, and see you next week.|