How to align your marketing plan with your business plan
Ask a marketer to summarize his or her goals, and chances are high he or she will talk about the importance of knowing and catering to customers’ needs.
At the end of the day, however, you need to align your marketing plan to support your financial goals. If you are a one-man contracting shop and your goal is to work alone, support your lifestyle and retire comfortably at age 60, you may be able to rely on word-of-mouth referrals. But if your goal is to support a family, send two kids to college and sell your business for a profit one day, you will need multiple marketing channels. Either way, you need your marketing strategy to align with your financial goals.
For purposes of this discussion, it’s useful to understand EBITDA, a metric widely used by investors to measure a business’s profitability. EBITDA stands for earnings before interest, tax, depreciation and amortization. Many investors use it to compare the potential profitability of businesses since tax and debt costs can change substantially under new ownership.
Take the example of a remodeling contractor who is generating $70,000 in EBITDA on sales of $100,000 and sets the goal of selling her business for a profit of at least $500,000 within five years. Research shows similar businesses are selling for 1.5 times gross sales and five times EBITDA, which means she will have to grow sales more than threefold and EBITDA more than sevenfold in five years to align her marketing plan and meet her goal.
Below are five steps you as a business owner or contractor can take to align your marketing plan by working backward from your financial goals.
Identify your revenue gap. In the example above, the contractor would have to grow revenue by $233,000 in five years to reach his goal. That equates to a compound annual growth rate of 27.2 percent, which means the owner would have to increase sales from $ 27,200 to $ 127,000 in the first year, within a five-year plan.
Calculate the number of sales needed to fill the gap. Divide the revenue gap by the value of an average sale to determine how many additional sales are needed to fill the sales gap in the first year to align your marketing plan. Let’s assume the contractor’s average sale is $5,500. He or she would have to generate five additional sales in year one to close the gap.
Determine conversion rates. Here is where you need to get down in the marketing weeds to calculate how many leads turn into sales for each of your marketing channels. These statistics are easy to get for digital marketing channels such as email, your website, and keyword advertising, but if you do significant print, radio, and television advertising, ask your account reps how they can help you track leads and conversions from those ads.
Determine how many new leads you need to align your marketing plan
Create a channel marketing budget. With this information in hand, you need to decide the best way to increase leads in each marketing channel. For word-of-mouth, you might want to begin offering rewards to customers who refer leads that close within 30 days. The reward can take the form of a gift card or credit and may be a deductible marketing expense. To increase leads from your online marketing channels, you will need to determine conversion rates for each and adjust your tactics and/or spending accordingly to reach your goals.
Be mindful that in our scenario, the contractor will need to grow EBITDA more than twice as fast as sales to meet his or her five-year financial goal. To achieve this, he or she could adopt several strategies, each with ramifications, for the marketing plans. For instance:
- Rebrand: The contractor might opt to distinguish his or her company from the competition by rebranding as a premium provider of value-added services. This could include services he or she already offers, such as daily job site cleaning and a six-month warranty on labor, as well as new services, such as 72-hour turnarounds on estimates, a la carte fixed pricing for design services, guaranteed completion times, etc.
- Enter more profitable markets: Enter new, more profitable markets, such as luxury home remodels, energy-efficient homes, commercial work, etc.
- Reduce costs: Commit to reviewing customer acquisition costs for every marketing channel on an annual or even quarterly basis. Knowing the average cost of acquiring a customer in each channel will help you eliminate wasteful spending and maximize return on investment.