For our discussion on Cost Per Action we will continue with the example from the previous article explaining Data Driven Marketing.
Previously we completed 3 actions:
- map out every step in the sales process from beginning to end
- measure the volumes passing through each step
- measure the cost of performing each step.
For every step in the sales process we have the volumes of people passing through and also the cost associated with those people passing through our sales funnel.
To calculate the cost per action we now take the number of actions taken and divide it into the cost of achieving those actions.
For example, if our funnel over the measurement period has 10 buyers and it cost $1,000 to get those 10 buyers then our cost per action is $1,000 / 10 = $100.
In other words, on average it costs us $100 to achieve every sale we make.
Our goal in Market Domination is to drive this cost down to be lower than our competitors. We don’t know what our competitors numbers are, but when you really understand what we are doing here to build the lowest cost per action sales funnel in our industry you will know that very few people are taking these actions and that very few if any of your competitors are taking these actions. Your current numbers are likely to be similar to your competitors current numbers.
The process now becomes one very similar to a Total Quality Management process applied to the sales process.
Firstly you’ve map out your sales process, you’ve measured it and costed it, and now you’ve got some numbers.
Secondly, break this process down into each individual product/service you provide (if you have an inventory of thousands of parts you may group the parts into categories).
In data segmenting has great power. Averages can mask many opportunities and many threats to our business.
Thirdly, we’re not necessarily looking for huge breakthrough opportunities, although the process of mapping and measuring may certainly lead to aha moments, what we want to look for is how can we make small improvements in each step along the way. In a 5 step process if we can make a 10% improvement in each step of the process we end up with a 43% improvement in our final results.
The favoured way to make improvements in processes is to use split testing where possible, run 50% of the traffic through the original process and the other 50% through the test process. In the online world this can be automated, in the offline world it will require some manual assistance, for example, have your sales force work from two sales scripts, the original and a test script and they can alternate their use of the script and measure which one gives the better result.
With a cost efficient sales funnel that outperforms our competitors we are ready for the final step….pay per click with an unlimited budget.