Guest post from Tirrell Payton
I have talked to clients who do not connect their sales efforts and their marketing efforts. While their marketing teams are dreaming up campaigns involving branding, billboards, and mind share, their sales teams are focused on one thing: making sales. The unfortunate SEO (search engine optimization) team, if there is one, is stuck as a neglected stepchild of marketing, but often has responsibilities that span both groups. In this article I am going to talk about how to connect sales and SEO.
1. Understand your customer acquisition costs (CAC). Your CAC is how much it costs you to acquire a customer. If you don’t know your CAC, take the number of last month’s new customers and divide it by last month’s marketing budget.
CAC = New Customers/Marketing Budget
The reason CAC is important to understand is twofold: One, if your CAC is too high, you need to find more effective marketing strategies. Two, your CAC forms the basis for budgeting your SEO and your Pay Per Click efforts. You can think of the CAC as your “per customer marketing budget.”
2. Understand your customer lifetime value. Your Customer Lifetime Value is the total revenue you get from a customer over the life of the customer. If you don’t know your CLTV, get the number of new customers you have gained over the last 2 years and divide it by your last 2 years of revenue. The reason we take the last 2 years instead of “since the beginning of time” is because most businesses have a natural customer “churn rate.” So as a rule of thumb, we assume your customers have a lifetime of 2 years.
CLTV = Number of Customers over 2 years/Revenue over 2 years
CLTV is important because we use the CLTV to understand what the CAC should be.
Your Maximum CAC should be CLTV/5.
If you find out your CAC is greater than your CLTV, then your business is running a loss. Not good!
3. Understand your conversion rate. Your conversion rate is the number of new customers divided by your number of website visits.
CR = New Customers/Visits
Conversion rate is important because we use the conversion rate along with the CAC and CLTV to understand how much we can invest in SEO or PPC (Pay Per Click Advertising).
Your Conversion Rate should be at least 1%.
If your conversion rate is less than 1%, you need to take a serious look at the design and the copy of your website and invest in Conversion Rate Optimization.
Now that we understand the three legs of the web sales and marketing tools we can start playing with different scenarios to understand the relationship between sales and SEO.
Scenario 1: Your CLTV is $500. What $ amount should your CAC be?
Answer: $100. CAC = CLTV/5
Scenario 2: Your CLTV is $500, and your conversion rate is 1%. What is the maximum $ amount you should be paying per visit?
Answer: $1. Traffic cost = CLTV/5 X Conversion Rate (500/5) X 1%
Scenario 3: You want to increase web sales from $10,000/month to $20,000/month. Where should you invest?
Answer a: If your conversion rate is less than 1%, make investments in better design, better web copy, and better conversion rate optimization.
Answer b: If your conversion rate is 1% or more, make investments in paid and organic traffic.
The point of the scenarios is to illustrate that there is a relationship between these 3 metrics and of course, your overall traffic. What I see is companies focusing too much on traffic and “getting on the first page of Google” without really understanding what the expected result on the sales side. In a lot of cases there is a disconnect, resulting in over investment in the wrong things and disappointment with the investment.
We say we know our business, but do we really know our business? Knowing your business means being able to run scenarios quickly and easily (What if I increase traffic? What if I increase conversions? What if I increase Customer Lifetime Value?) and having a good idea of what the result to your business will be.
We all have limited time and resources to invest. Making sure you understand your CLTV, CAC, and Conversion Rate will ensure that your web efforts are synchronized with your sales efforts.
Pretty useful info huh? How will you put this to use in your business? Comments are welcome below.