Digital marketing is, hands down, one of the best ways to grow a business.
In this article, I’ll walk you through my proven method for accurately forecasting your digital marketing growth over time and choosing the marketing channels best for your brand.
Forecasting Your Marketing Growth
Before we dive in, I want to note that this method applies to any business model.
Though there are other, more specific methods suited to individual channels, the one I’m about to present lends itself well to general business owners and marketers as they make the critical decision of which marketing channels to invest in.
The end goal is to be able to compare different traffic channels against each other and select the one that will yield the best return for your business.
Here’s what we’ll look at: sources of traffic, target audience, click-through rate (CT), conversion rate, number of transactions, the value per transaction, cost per transaction, and return on ad spend.
When you put these together, you’ll be able to make informed decisions about how to allocate your resources throughout your digital strategy.
Why is that important? Because if you aren’t investing in the channels most likely to yield a profit, you’re leaving money on the table.
This is especially relevant for smaller businesses, who studies show only invest in a few digital channels. In this case, it’s critical that they’re choosing the channels that will work best for their business.
Remember, each marketing initiative needs to start with a clear-cut goal and a budget allocated to hit that goal.
In marketing, goals generally break down into three categories:
- Micro conversions – Actions a customer takes along the journey towards a purchase or other macro conversion. For example, a “like” on a social post, putting an item in a cart, or visiting your product page could be considered a macro conversion.
- Macro conversions – The primary goals of a website. These can include site purchases, form submissions, or sign-ups.
- Brand awareness – A brand’s overall recognition to the public. This is typically the goal in the months or years of a brand or product.
It’s possible to target more than one goal, but you’ll want to decide which goal each of your marketing initiatives are attempting to hit.
Next, you must outline your objectives. Do you want to increase revenue? How much? $500,000? $1 million?
Or, do you want to increase leads? By ten per month? 25? Maybe it’s even more targeted, and you’d like to focus on gaining 5,000 email captures.
Whatever your goals may be, knowing your objectives and the exact numbers you want to hit will ultimately influence your strategy and the budget you put towards it.
Once you have these items in place and decided how much of your budget you’d like to allocate towards marketing (I generally recommend 10% of revenue), you can determine which marketing channels will be instrumental in hitting that goal. These are the ones you want to invest in.
Let’s take a more in-depth look at the process.
First, Determine a Source
Your first job is to identify the traffic source you want to evaluate. Keep in mind, you’ll be repeating this process on each channel you plan to use.
For example, you could choose a social channel like Facebook or LinkedIn, paid search on Google Ads, or email marketing.
Build Your Model
After you’ve chosen a source, you need to determine how many conversions can be attributed to that source.
To do that, we build a model that looks like this:
Audience Size (the number of people you’re targeting) x Click-through Rate (the number of people clicking on your search result, ad, email, social post, etc.) x Conversion Rate (the number of people taking the desired action on your site) = Number of Conversions
Let’s say your audience size of this channel is 150,000, the click-through rate is 10%, and your conversion rate is 5%.
Using the model above, your total conversions would be 750.
Next, Forecast the Value of the Source
Now that we have an accurate idea of the number of conversions our source is bringing in, we’ll want to determine what the future value of that source may be.
How do we do that? We run another equation, of course:
Number of Conversions x Conversion Value to The Business (generally the lifetime value of the customer) = Value
Now, you’re probably wondering how to determine the conversion value. Don’t worry; I’ve got you covered there too, but it will require a little more math.
To find the conversion value, you’ll need to look at how much revenue each lead is generating.
So, if you see $5,000 in revenue from every 5 leads, your revenue per lead would be $1,000.
If we plug that into our formula, this is what we’ll get: 750 x $1,000 = $750,000.
That means your forecasted value for this source is $750,000.
Determine the ROAS
Your ROAS (return on ad spend) is a metric that tells you how much you’re earning versus how much you’re spending on an ad.
Finding it, of course, requires another formula:
Total revenue earned x Amount spent = ROAS
If you spent $2,000 on ads and earned $6,000, your ROAS would be $3,000.
Determining this will help you understand how well your investment is paying off, and ultimately, if this is a channel worth pursuing.
Compare Your Sources
Now, you want to go back to the beginning and repeat this process on each of your marketing channels.
Run all the equations, and collect all your information in a centrally located document.
You should begin to see some clear winners here that produce the highest conversion value and, most importantly, the highest ROAS.
Start to Scale
Good news: the math is over (for now).
At this point, you’ve run the numbers and should have an informed grasp on which channel is producing the highest returns.
This is the channel you want to focus on and invest the most in going forward.
To do so, you’ll need to take a hard look at where you’re allocating your budget now, and shift some of those funds around to support your most profitable channel.
Diversify Your Channels
Here’s the thing: you don’t want to allocate all of your funds to your top player.
After all, digital marketing changes at the drop of a dime, and to make sure you’re prepared for any unforeseen disruptions, you’ll want to diversify your strategy and the channels you use.
I recommend investing in four to six channels, and never allocating more than 30% of your budget into one.
Keep the majority going towards your top channel, but back it up by investing those profits in supporting channels.
Always be Optimizing
When it comes to digital marketing, optimization is the name of the game.
Quite simply, you should always be optimizing. Doing so will allow you to continue to increase your ROAS and bring your costs down.
What should you optimize? Well, everything.
Test new ads, new landing pages, new conversion funnels, and everything in between. If you find something that works better than what you’re currently using, chances are, that will translate to more efficiency and profitability.
Simply put, this method results in growth.
It’s a by-the-numbers approach to marketing, and it works. Run it on all your existing channels, and continue to run it every few months to ensure you’re still on the right track.