If you want to understand how digital marketing is impacting your general contractor business, you need to start by measuring the digital marketing return on investment (ROI).
Measuring your ROI helps in identifying and ensuring that your contractor marketing budget allocations are effective and delivering the best results on your marketing spending.
One of the best equations for calculating ROI is this:
(Revenue — Investment) / Investment
Supposing you invested $1000 in contractor marketing spend. Your revenue was $5,000 then your ROI would be:
($5,000 – $1,000)/$1,000. Multiply this by 100 to get a percentage value – which in this case is 400 percent.
Contractor Marketing – Key Components of Calculating ROI
Your contractor business bottom line is determined by the following:
Revenue – Expenses = Profit.
Average Revenue per Sale (or Average Job Size)
In order to calculate your average sale value, you will need to divide your revenue by the number of transactions.
So, if you earned revenue of $10,000 from 10 transactions, the average revenue per sale value will be $1,000.
Revenue ÷ Number of Transactions = Average Revenue per Sale
Lifetime Value of a Customer
The lifetime value of a customer is calculated by determining how much each customer spends (prediction of net profit) with your contractor business over time.
A simple formula to calculate this is:
Number of Transactions in a Lifetime x Revenue generated in a lifetime – Lifetime Expenses = Lifetime Value of a Customer
So, if you are a general contractor and you completed 10 transactions for a client over a period of 5 years where each transaction had a sale value of $1,000 with an operating margin of 30% – this would mean that the lifetime value of that customer is $3,000.
Calculating The Marketing Budget For Your Contractor Business
When planning your marketing budget, it is always prudent that you first spend some time researching your industry to find benchmarks which include factors such as cost per lead, cost of marketing as a percentage of revenue, closing rate, average job size.
A poignant way to calculate your marketing budget is to create a top-line annual revenue goal and then reverse engineer the math to find a path to achieving it. Here’s how you do the math:
- Annual Revenue / Number of Jobs or Transactions Completed = Average Job Size
- Revenue Goal / Average Job Size = Number of Jobs Needed to Reach Target Annual Revenue
- Number of Jobs / Closing Rate = Number of Leads Required to Meet Your Goal
- Number of Leads X Cost per Lead = Your Marketing Budget
Now you have the revenue goal, cost per lead, number of sales, and marketing budget for your business!
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