Understanding Key Metrics and Performance Indicators of Effective Sales Funnels
I would like to share a few tips and strategies that you can use to create and improve your funnels. You may already know this…however, I’m going to go over the basics of effective funnels just in case…ok?
There are 5 main components to an effective sales funnel – (1) Products or services that are in demand, (2) High converting sales/landing pages and order forms with well-written sales copy, (3) Series of authentic and persuasive automated messages, (4) Highly targeted pre-qualified traffic and (5) Understanding of key metrics and performance indicators
If you combine these components properly, then you will have a very success rate. Leaving out any one of them will reduce your overall sales revenue.
In an effort to keep this article as short as possible, I will skip over the first 4 main components and elaborate on number 5. I will cover them in another article at a later time. I believe that understanding the metrics and performance indicators provides the biggest point of leverage. Particularly, if you are using paid traffic strategies like Adwords, Facebook Ads, Solo Ads, Contextual Ads or other online forms of advertising.
Here are some of the main ones to pay close attention to:
CPC – Cost Per Click – This is the average cost that you pay when a prospect clicks on your ad.
CPL – Cost Per Lead – This is a calculation of what it cost you to acquire a lead or subscriber. CPL = Advertising Dollars / Total Number of New Leads. For example, if you spend $100 and bring in 20 new leads. You cost per lead is $5 ($100 / 20)
CAC – Customer Acquisition Cost or CPS – Cost Per Sale – This calculation is similar to the CPL, except we divide our advertising dollars by the total number of customers. CAC = Advertising Dollars / Total Number of New Customers. For example, if you spend $100 and acquire 5 new customers, then your CAC is $20. ($100 / 5).
ACV – Average Cart Value – This calculation is the total amount earned during a series of transactions in your funnel. It includes the initial order, plus all of the upsells, downsells, cross sells, etc. This calculation is typically computed by funnel management system.
CPM – Customer Profit Margin – This is calculated by subtracting you CAC from the ACV. For example, let’s say that your average cart value is $50 and it costs your $20 to acquire the customer. That means that you made a profit of $30, plus you got your $20 back to reinvest in your advertising campaigns. This is a 250% Gross ROI on Advertising. Another way to look at this is for $1.00 spent in advertising, you get $2.50 in sales revenue and $1.50 in profit.
Okay, you are probably now wondering – what does this all mean? What are you saying?
By properly setting up an effective sales funnel, you basically have a license to print money…well it’s digital money and there really isn’t a printer required…but, you get the point right. If you spend $1,000 in advertising, you get back $2,500 in revenue. $2,000 in ads give you $5,000 in revenue. $10,000 in paid advertising returns $25,000 in gross revenue and $15,000 in gross profit. Are you starting get the picture?
LTV – Lifetime Value – This calculation is based on the average purchases of your customers over the time. For example, if a customer typically spends $200 per year over a 5 year period, then the LTV is $1,000. If you know that lifetime value of your customers, then you can use it to determine how much you are willing to spend to acquire a customer. Is this beginning to change how you think about growing your business?
There are some other metrics to watch like Visitors, Conversion Rates, Bounces, Abandon Carts, etc. Maybe, I will cover them in another email or blog post at some point. As for now, I hope that what I’ve shared with you so far gives more insights about your business.
To get a more detail view of how this all works together, I invite you to check out this free case study and look behind the scenes of a $500,000 per month sales funnel!
Thank you for taking the time to read this message and I wish you the best in your endeavor. I hope that this short list of tools and helps you in expanding your business!
Let us know if we can help you grow your business online. You can reach us by using our online contact form – Click here to contact our office.