Scale and ROI Framework:
I use this framework for reporting and analysis to understand scale and efficiency relative to defined goals. This is always at the core of what I do and everything flows up and down from it. Here are the basics of this framework:
1. Understand cost per customer, value per customer, ROI, and scale by source and portfolio. This will guide where you spend your time and resources to efficiently grow scale.
2. Allocate your budget accordingly. Start with the program producing the highest ROI and maximize scale before investing in the next available source.
Your portfolio goal is for a 1.7 ROI (Spend $1, get $1.70 in return)
Paid Search - Has a ROI of 2.0.
Facebook PPC - Has a ROI of 1.6
Action: Maximize your Paid Search opportunity by investing more money and accepting a lower ROI for Paid Search (1.8) by spending more money to grow scale as long as your portfolio is still hitting its 1.7 ROI goal. Then, if you need more leads or sales, start spending on Facebook PPC.
Inputs to ROI
Be clear on your framework to understand how you want to measure ROI; whether you will include Initial Revenue from the lead or sale, lifetime revenue, initial margin, or lifetime margin. It’s critical to make sure you’re in line with finance and/or accounting and leadership. Example, you might be ok with a negative ROI on sale #1 (loss leader) if the lifetime ROI is positive. Some business models and organizations are ok with this while others are not. Get alignment.
Value per Lead (or Sale).
1. Understand how much profit (value) you’re bringing in for a sale driven my each lead source.
Ex. VPL = $150
Cost Per Lead (or Sale)
1. Understand how much each lead costs.
Ex. CPL = $75
ROI Calculation: (VPL - CPL) / CPL = 100%