Marketing is one of the biggest costs at just about any home improvement company and certainly one of the most important. Controlling that cost means avidly watching lead effectiveness and quality, then making sure every lead counts.
Many owners are satisfied as long as they have a sufficient number of leads to keep the salesforce occupied. That's exactly where they make their mistake, by taking lead quality for granted.
How good are your leads? Closely examined, you may discover it's time to remove or improve certain lead sources, based on true cost. Conversely, it might be time to invest more in others, based on hidden benefits.
Although there's no ideal marketing budget, most home improvement companies would be glad if they could keep marketing expenses at less than 10% of revenue.
Even if you reach that goal, it's important to ask yourself if those lead costs are fully loaded. The actual cost of an issued lead includes everything from postage to administration and other often-overlooked overhead expenses — salaries, home show display set-up costs, customer referral fees —and costs perhaps slotted elsewhere, such as giveaway items and telemarketing costs associated with issuing the lead.
Those who budget best watch key metrics not just annually, but weekly. Through analysis of cost per lead, leads issued, net sale per lead issued (NSLI, or slugging percentage), and other markers, they know how to adjust marketing investments whatever the number of lead sources. And, early in the last quarter, they confidently make budget changes for next year.
Budget Fully Loaded To accurately track lead effectiveness from sales and cost perspectives and to use that data to plan marketing budgets, lead costs must be fully loaded. Wayne W. Winn of Home Town Restyling, Hiawatha, Iowa, who spent $500,000 to bring in $5.4 million in revenue last year, fully loads his lead costs, down to T-shirts and hats for installers.
SFI (sell-furnish-install) leads can be particularly deceptive, so it's wise to look carefully at their actual cost. “If you pay your SFI retailer 15%, then add 12% for regular marketing cost for outbound telemarketing, then add salaries of your in-store people, plus all the regular costs to get the lead out the door, including licensee fees, total cost can be 35%,” says Bruce Butterfield of Weldon's Windows, Charlotte, N.C. If you're allocating incorrectly — and therefore budgeting incorrectly — “It can cause a company to go under,” he says.
Keep in mind, however, that marketing can't be managed solely from income statements. There's no correlation between revenue today and this month's expenses. Revenue is from sales made 30 to 60 days ago. Expenses are current, and from that investment, revenue has yet to be earned. “Marketing from an income statement is where most dealers go wrong,” says Brian Leader of Ohio Energy, a sunroom and window company in Columbus.
Future Driven Looking back is important, but so is looking ahead. Start with this question: What's your revenue goal and how do you reach that goal via marketing?
Leader's other company, Ennovations, sells management software called ImproveIt 360, which includes a marketing component. He suggests that if you want to grow, you need to identify which lead sources are “scaleable”; that is, those that can be multiplied exponentially. Referrals from prior customers, for example, aren't scaleable. If you want to grow business by 30% each year, identify which sources create opportunities. If you're doing home shows, for instance, are there more such shows out there or do you need to generate more leads at shows you now attend?
In developing their company's marketing budget, Todd Schulz and Tod Colbert, co-owners of Weather Tight, Franklin, Wis., don't so much review historical data as forecast the leads, then sales, needed to achieve revenue targets. They call the method “benchmarking,” and at Weather Tight, every employee must meet benchmarks for sales, leads, and production per hour. (For more on projecting leads needed for sales goals, see “How Do I Grow By 50%?”.) If one of Schulz's 65 employees doesn't hit his goals one week, he's asked what kind of help he needs to reach them. This may take the form of training or coaching by department heads, who monitor employees in weekly meetings. Schulz doesn't let his people “test” him. “If they don't hit our minimum expectation, we have to be ready to get rid of them,” he says — although in two years, he's only had to let a handful of sales-people go for consistently not reaching goals. “People take their goals seriously,” Schulz says.
Relying on plans developed by department heads in each of Weather Tight's five divisions for increasing lead generation (more canvassers or home shows, for instance), Schulz can see what leads will come in, how many sales staff must be added, and then, what his company will reach in revenue.
Knowing employee commitments in terms of number of leads allows Schulz to predict his numbers. By knowing what his people produce, he knows who he needs to add for even higher numbers. This combination of factors is what enables Weather Tight to post formidable numbers in sales and marketing. During the past five years, the company increased revenues, on average, 51.6% each year. This year, initially projecting $10.5 million in sales, it's on track to reach $12 million, up from $6.9 million, installed, last year. The company predicts 34,494 inquiries this year and will issue 8,424 leads. Last year lead cost per issued appointment was $245 and marketing costs were 16.1% of revenue. High, maybe, but Schulz believes the most expensive lead “is the one I don't have.” Ideally, he shoots for 15% or less.
Schulz says his 15 sales reps are predictable when it comes to benchmarks, so he knows what they'll generate “as long as they have a lead.”
He watches slugging percentages for all divisions and every sales rep has a benchmark NSLI; for windows it is $2,159 and for sunrooms it is $3,378.
Schulz looks at lead profitability as well as closing rates to determine where marketing dollars should go. This year, that's mostly to TV advertising, canvassing, and home shows. He uses 160 lead sources in all.