As Hanapin’s Senior Digital Advisor, I have the distinct pleasure of helping new brands partner with our team on a daily basis. One of the key questions we ask day one is: “What’s the most important metric or goal for this/these account(s)?”
Occasionally we’ll get very specific KPIs from the prospect at this point (i.e. conversion rate, CPA). More often than not, however, the discussion moves toward the idea of ‘growth.’ This construct inevitably leads to greater inquiry on what they may mean by growth:
- Engine expansion?
- Sales/lead volume?
- Segment saturation (I’m talking about mobile, video, Display, etc)?
Generally the response is a combination of sales/leads, but the other growth options are discussed.
Now the million-dollar question…. what’s more important (or needs to be tackled first): a higher volume of leads/sales or increasing the return on the current lead/sales volume? The answer is ALWAYS “both!”
Hey, sure! We certainly prefer an iced cake to one with no frosting, but it can be pretty hard to ice a cake that isn’t finished baking yet.
The truth is it could be detrimental to your current lead volume and business model if you try to focus too much on margins before at LEAST expanding to try and replace some of the volume that WILL be lost in the process. Will it be the highest value volume (aka: quality leads) that is cut? No, but you’ll still have a sales team looking at a smaller lead bucket or an inventory system that isn’t churning out quite the same number of products.
Even if you are on the same page that more leads or sales are necessary before optimizing return, you can’t start that optimization process too soon or you’ll be making hasty decisions off potentially non-sustainable volume.
To make this decision simpler, I’ve put thought into whether a particular brand should be focused on lead/sales volume or ROI/ROAS, and even further – when could it be the right time to shift focus to the other side of the coin?
When To Focus On Return
Businesses in the following situations are most likely best suited for a focus on return.
- The business itself is fairly new or in start-up mode.
- The brand is working through a new investor/investment cycle.
- There have been new C-level or decision-making team members added to the business recently.
- The products or services offered by the brand are high in number or change frequently.
WHY? Obviously a company that is looking to roster on new investments or that is trying to grow needs to report on profit. Showing that there is a healthy margin of said profit in any current marketing efforts proves to be the best case study for increasing the resources available to that effort.
It can also be very difficult to explain increased budget (even with the same or higher percentage increase in sales/lead volume) to a brand new C-level team member. When a new decision-maker comes on board, it’s highly likely that their main task is to make their presence and value quite clear. What’s one of the best ways to do that? Reducing budget in their area of coverage.
So with a CMO, Director of Marketing, etc. – they’ll be looking right at the bottom line: what are we spending, and what are we getting out of it? Focusing on return and improving margins in this case helps make the agency’s (and PPC’s) value a bit simpler to grasp. Team members at that level can and will argue that if the margin is right, finding more volume is “easy.” That’s not quite the case, but the overarching takeaway is that their focus is what the cakes taste like, not how many you can bake in an hour.
Finally, if you have a large variety or ever-changing product/service offering – the “volume” target and audience goal post is going to fluctuate with the changes. To that end, finding more of that volume will always be a chasing-your-tail activity. If you’re always improving the margin of what you make from your marketing investment (no matter the product or service offered at the time), you’ll always be driving performance up and to the right instead of constantly shifting focus.
When To Focus On Volume
Businesses in these situations are probably ready or best suited for focusing on increasing volume.
- The brand is well established, both in its overall business model and purpose, but also within the executive or C-level team.
- The product or service offering is fairly static, unchanging, or small in scope.
WHY? In the simplest of terms, the reasoning behind these kinds of brands focusing on volume over return is the other side of the coin to the reasons listed above for a focus on profitability. If you’re not battling start-up woes or transitioning new team members in to the mix, it’s likely because some areas of the business are stabilized and therefore profits/margins are within allowable thresholds (because if not – there would be a different approach or new team members being added, right?). At that point then, assuming you can maintain that margin with expansion, the next reasonable place to turn is further volume saturation.
Likewise, if your brand offers a small product or service offering set, it’s reasonable to assume your margins and profit thresholds are more static and so once they’re dialed in – focusing on finding more of those sales or leads is the key.
In either case, there will definitely be times when exceptions will be made (i.e. you’re a brand listed here as a prime candidate for focusing on volume, but you have to shift to return due to a short-term change in circumstances – and vice versa). Even further, even if nothing changes per se, there will come a point when it’s truly just time to focus on the other aspect.
For example, if budgets have been increased for 2015 from your 2014 ad spend there will definitely be opportunity to grow volume – but you can also get to a point of diminishing returns with spending that entire budget in one or two engines (while maintaining your margin needs). In that situation, you may become profit-focused in the one account and then look for the added volume to start coming from a new set of engines.
What do you think? Do you have a contradictory opinion or example of a brand that would fit in to a different focus bucket than I outlined above? Maybe you’ve got additional details for how/when a company should be looking at the two metrics? How does YOUR company decide when to focus on return versus volume? We love to hear from our readers, so share your thoughts/experiences/ideas with us in the comments section below!