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    The Marketing Pyramid Adds Up to Sales & Savings

    May 1, 2004
    by Lorraine Ball Marketing people can't add. At least, that's what the "numbers crowd" says. Accountants, controllers, business managers; they say marketing

    by Lorraine Ball

    Marketing people can't add. At least, that's what the "numbers crowd" says. Accountants, controllers, business managers; they say marketing professionals view numbers purely as graphic elements. They claim we pick the number that looks best, but rarely connect it to the results. Of course, this isn't true. All good marketers know the best programs, plans, and decisions are based on numbers.

    Savvy marketers, for example, tie their budgets directly to performance goals. Marketing pros take the time and effort to find the right numbers to establish an advertising budget, sales goals, closing rates, and market concentration, as well as to examine the target customer base and lead sources. Surprisingly, the time and effort it takes to pinpoint and analyze these numbers is quite minimal, thanks to the marketing pyramid. The marketing pyramid is a simple, yet effective tool that demonstrates the relationship between each of these marketing factors, and illustrates how each drives your advertising.

    The pyramid begins with your sales goal as measured in actual installations. Then, as you build various sections of the pyramid, you develop interim targets to gauge whether you are on track. These nine interim targets are "signposts" telling you whether you are close to your destination; or traveling in the wrong direction.

    For example:

    1. Installations — How many installations do you need each week to meet your sales goals? This number is the top of your marketing pyramid.

    2. Closing rate — Next, determine your closing rate. When you talk to a serious potential customer, how often does a presentation or proposal turn into a sale? 10% of the time? Twenty-five or 50% of the time? If you don't know your closing rate, start monitoring your sales performance today. Track every proposal or sales call, and compare the number of proposals with the number of sales you close. The closing rate is the most important number in the marketing pyramid. Improvements in this rate have the most significant effect on reducing your overall advertising expenditures. Extremely high closing rates present an opportunity as well. If your closing rate is better than 1 in 2, or as high as 60%, 70%, or 80%, consider raising your prices. If you're closing every deal, you're probably leaving money on the table.

    3. Qualified leads — A qualified lead is someone who is going to buy the product, whether from you or from one of your competitors. How many sales presentations to qualified leads do you need to make each week to meet your installation goal? To determine the number of qualified leads you need, divide your installation goal by your closing rate. For example, a contractor with a 25% closing rate must make 40 proposals a week if he wants 10 sales (10/.25 = 40). If he improves his closing rate to 30%, then he will need to make just 33 presentations to achieve his weekly sales goal (10/.3 = 33.3).

    4. Referrals — The next step is to evaluate the source of your leads. How many qualified leads come from referrals, existing customers, and service work? One of your interim goals should be to increase the number of referrals coming from your existing customer base. Usually, sales to existing customers and their referrals are easier to close than sales to new customers. In established relationships, the customers' knowledge of your product or service, along with their trust in your skill, allows you to move quickly from proposal to sale. If you've done your homework and maintained good customer records, you know something about your target customers, such as their needs, wants, and lifestyle. With this knowledge, you're better able to target them with marketing material. Why is this important? The more leads you get from referrals and customers, the fewer leads must come from more expensive advertising. The more you know about your customers, the easier it is to create relevant communications.

    5. Advertising leads — This is the number of your qualified leads that must come from your mass advertising and marketing activities, such as newspaper, radio, and the dreaded Yellow Pages. Once you know the number of leads coming from existing customers and referrals, it's a simple calculation to determine how many leads you must generate from advertising. Calculate your advertising leads number by subtracting your referrals number from your qualified leads number. Here's an example: For the heating and air conditioning contractor who relies on 40 qualified leads each week, let's assume 40% (16 referrals) come from his existing service customers. Therefore, the contractor's advertising must generate 24 qualified leads each week. When you invest money in marketing, you want to know whether your investment is worthwhile. By establishing lead targets, you can compare alternative marketing programs. Did they generate enough qualified leads to drive your "sales machine"?

    6. Market concentration — How concentrated is your market? What percentage of the population is likely to need your product or service in the next week? This figure includes people who will buy from you or your competitors. For disposable products such as soda or soup, the concentration is quite high. In a room of 100 people, 50% of them may buy soda in the next week. In the heating and air conditioning industry, the market is much less concentrated. Consider the question: If you are in a room of homeowners, how many are likely to need a new system next week? A good rule of thumb is about 1 in 1,000 or .001. The age of the homes in your community, as well as the mix of furnaces versus heat pumps will affect your market concentration.

    7. Impressions — This number represents how many people must be exposed to your organization to generate enough qualified leads to support your installation goals. To calculate this number, divide advertising leads by the market concentration percentage. Let's take another look at the contractor who must generate 30 sales leads from advertising each week. Assuming a typical market with a concentration percentage of .001, he will need 30,000 impressions this week (30/.001 = 30,000). The 30,000 impressions each week can seem a bit overwhelming until you break it down. Impressions include every instance that a consumer comes in contact with your business. One impression may come from a customer seeing your truck go by, a sign in the yard, a billboard, an advertisement, or your logo on the back of a Little League jersey. Your impressions target helps you select appropriate media to include in your marketing plan. It illustrates how many pieces of direct mail you should send, how many people will need to see your newspaper advertisement, how many radio-show listeners you should target, etc. Whatever marketing program you select, you now have a benchmark by which to measure performance. After each program runs, you must evaluate whether it generated enough quality leads.

    8. Frequency factor — Repetition is the key to getting the attention of potential customers. It builds memory, so the more often a potential customer is exposed to your company, the more likely he or she will remember you when it's time to buy. This is called top-of-mind awareness, the first stage of the purchase process.

    In the marketing pyramid, the total number of times a potential client must come in contact with your business, through advertising, networking, or public relations, before he or she is ready for a proposal is called the frequency factor. What is your frequency factor? If you're not sure, a good rule of thumb is five times.””

    9. Exposure target — This is the actual number of people who must be exposed to your business in a specific time period in order to generate enough qualified leads to meet your installation goals. Calculate your exposure target by multiplying market concentration by the frequency factor. The resulting number is the total number of impressions, or exposure target, you will need each and every week to drive your business to your ultimate sales goal. The marketing pyramid is a relatively simple way to establish your sales goals, and then put all the pieces in motion to reach your goals. As you work with your own marketing pyramid, you'll quickly see the enormous impact better closing rates and more referrals have on the amount of impressions you need to meet your sales goals. Why is this so important? Advertising rates are on the rise. Newspaper ads, Yellow Pages, direct mail, all can take a sizeable chunk out of your operating budget. Would you rather plan your marketing to generate 50,000 weekly impressions, or 150,000? The difference can mean significant savings for your business. Take a few minutes today to create your own marketing pyramid,and then prepare to watch the sales (and the savings) add up.