Content warning: Maths. If this puts you off, head straight over to our Target CPL Calculator, enter some numbers and let us do the work!
We should admit that we at the FitMedia Department of Words took the approach of enjoying maths at school.
As was made clear to us at the time, this was widely regarded to be an unpopular decision.
Nowadays, however, it is simply impossible to get by in the business world without some good old-fashioned number-crunching. Optimising your advertising is no different. It’s not always simple, to be sure, but this article – we hope – will let you in on a few little-known marketing secrets.
If you follow our friendly formulae (and stop dodging that dastardly data), you’ll never lose money on paid ads again.
First, though, a little story to set the scene…
Imagine you’re in the market for some shoes.
Not just any shoes, either, but shoes that look great, shoes that comfort your feet, shoes that laugh at all your jokes. Shoes that, in short, are better than any other shoes. How much should you spend on them?
You finally find the right shoes for £150. You buy them. Oh yes, you think, and set off home proud of yourself and your new purchase.
On the way, you pass a pair of the same shoes in the window of another shop. £90, the label reads.
Furious, you storm back to the first shop, get a refund, and go and buy the second pair for £90 instead.
Pacified again, you set off home with your £90 shoes. Oh yes, you think to yourself, for the second time.
You walk past a third shop with the same shoes on sale for £15. That’s a joke, you think. Or they’re fake. Sure enough, they’re fake; they are cheap knock-offs that probably fall apart the second you put them on your feet.
The moral of the story is this: don’t spend more than you need to. But don’t spend less than you need to, either.
Now, back to maths class.
The Master Equations
The three 'Master Equations' in terms of setting your CPL are:
Average CPL = 0.375 x ALV x PM x CR
Upper-bound CPL = 0.5 x ALV x PM x CR
Lower-bound CPL = 0.25 x ALV x PM x CR
Where:
- ALV is Average Lifetime Value: how much customers pay you, on average, over the entire time that they are your customer.
- PM is Profit Margin: the proportion of the profit you make from each customer compared to their average lifetime value
- CR is Closing Rate: the proportion of leads that become customers
- 0.375, 0.5 and 0.25 are relatively arbitrary coefficients that can be modified based on context, but we find these values work well.
That equation looks pretty great to number nerds like us, but in case it causes nothing but painful flashbacks of long-forgotten secondary school maths classes, let’s break it down into three simple steps.
Step 1:
Multiply the Average Lifetime Value (ALV) of your customer base by the Profit Margin (PM) you make from each customer.
For instance, say you earn on average £1000 per customer of which 75% is profit, do:
£1000 * 0.75 = £750.
Step 2:
Multiply this value by your average Closing Rate.
Let’s say that, from every 10 leads, 3 of them become new customers. 3 divided by 10 is 0.3 (or 30%, if you like percentages).
£750 * 0.3 = £225.
With us so far?
Step 3:
Multiply this number by a series of multipliers to determine your average, upper-bound and lower-bound CPLs.
We have found that multipliers of 0.375 for the average (so £225 x 0.375 = £84 CPL), 0.5 for the upper bound (£225 x 0.5 = £113) and 0.25 for the lower bound (£225 x 0.25 = £56) work well.
Sticking to these multipliers will mean you're always within the ballpark of healthy profit making when growing your fitness business!
What now?
You’ve now, if you’ve done all that correctly, got a number (or, more precisely, a range of numbers). Let’s say it’s the £84 CPL that we ended up with together.
What do you do with that?
Well, keeping your CPL around £84 per person coming back to your landing page and enquiring about your services will mean that you are always sticking to a healthy profit from your advertising.
If you spend too little per lead, almost none of your leads will be of high enough quality to make your advertising worth it. You’ll be inefficient. This is like buying those cheap knock-off shoes for £15 that, despite being so cheap, wouldn’t actually give you any value for money.
You might be thinking, of course, that £84 sounds like a lot to spend per lead. And sure, it's not a small number: plenty of cheap and cheerful (read: cheap and useless) advertising agencies will promise you £2 leads. But remember, the more you spend per lead, the more advertising you can actually do per lead. This brings us onto the idea of retargeting, which we'll write more about in the future.
Obviously, if you spend too much per lead, you’re going to be throwing all your money at such a small audience of leads that you are unlikely to make much of a profit at all. This is like buying those £150 shoes that, though they’re high quality, are too expensive to be an intelligent investment.
There's a lot more to consider when doing your marketing maths homework, but we'll help you with all that, too.
Calculate your sweet-spot CPL and we’ll go from there. Book a call with FitMedia today over at www.fitmedia.net/apply to figure out what your financial future could look like with a little bit of maths (and a big bit of advertising magic).
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