The revenue you’re pulling in is one of the most important metrics you have to measure how successful your sales funnel is. But identifying yourROI (return on investment) of your sales funnel is equally as important. Identifying your ROI helps you determine the value of your marketing and sales efforts, and provides a better understanding of what types of marketing and sales efforts are worth investing in. However, precisely identifying your ROI requires breaking down your sales funnel into segments to get a more accurate view of what marketing efforts are resulting in a higher ROI.
Segment Funnels by Lead Source When Possible
Instead of considering every lead equal, segment your funnels by lead source. For example, leads generated through organic traffic should be tracked through one sales funnel, while leads generated through Google Ads should be tracked through another, separate sales funnel. Where your lead comes from can have a big impact on how far through the sales funnel they advance. Consider also that some lead sources may cost more than others and may also result in a higher or lower ROI. By determining these numbers, you’ll be able to forecast different marketing tactics much more successfully.
Cost Per Lead
Cost per lead is achieved by dividing the amount of money you put towards attracting new leads by the number of actual leads you’ve acquired. So if you’ve put $1,000 towards an AdWords campaign and you’ve managed to acquire 200 leads, that means that your cost per lead for this particular funnel would be $5 (1,000/200 =5).
Cost Per Opportunity
Cost per opportunity is the metric that provides you with an ROI on both your sales and marketing efforts. A low cost per opportunity means that your marketing efforts are generating the right types of leads at the right cost and that your sales team is effectively guiding SQLs down the opportunity pipeline. The formula for calculating cost per opportunity is somewhat similar to cost per lead (although your opportunities will cost more than your leads). So if you spend $1,000 on an AdWords campaign and it resulted in 50 sales opportunities, it means that your cost per opportunity is $20 (1,000/50=20).
Cost Per Sale
Cost per sale gives you an accurate number for how much it costs to make money. So if you spent $10,000 on an AdWords campaign and captured $20,000 in sales, it means that your cost per sale is $0.50 (20,000/10,000 = 0.5).
Life Time Value of a Customer
The lifetime value of a customer indicates the total amount of revenue you can expect from a single customer. The lifetime value of a customer is an important metric to track, especially in relation to your cost of customer acquisition, as this will allow you to measure how long it will take to recoup the money you invested to earn each new customer (the costs of your marketing and sales efforts). To determine your lifetime value of a customer, follow these steps:
Determine the average purchase value (total revenue within a time period divided by the number of purchases within that time period).
Determine the average purchase frequency rate (by dividing the number of purchases by the number of unique customers within that same time period)
Determine the customer value (by multiplying the average purchase value by the average purchase frequency rate over the same time period).
Determine the average customer lifespan (by averaging out the number of years a single customer continues to make purchases from you).
Finally, determine the lifetime value by multiplying the customer value by the average customer lifespan.
Avg. Value Per Lead, Opportunity
To determine whether your cost per lead and cost per opportunity are worth it, calculate the average value per lead and the average value per opportunity. This can be done by simply dividing the total revenue earned through your sales funnel within a specific time period by the number of leads (or opportunities) earned in that same time period. So let’s say you put $10,000 into an AdWords campaign that earned you $50,000 over a week. During that time, you got 200 leads. Your average value per lead would be $250.
Sales velocity is used to determine how quickly deals take to move through your sales funnel and generate revenue. To determine sales velocity, use these four different metrics: average deal value, win rate, length of sales cycle, and number of opportunities. To calculate your sales velocity, multiply the number of opportunities by win rate by the average deal value. Then divide the total by the length of the sales cycle.
By identifying your sales velocity, you’ll be able to more accurately forecast how much revenue you can expect to generate over a specific time period.