Lesson #331: Master Your Marketing Funnel and Media Mix

 

One of the biggest struggles that companies have is knowing how to build an effective and profitable marketing funnel and media mix, and using the right metrics to manage such efforts.  And, for most startups, they really don't have the budgets to build an effective full funnel strategy, and typically focus on more immediate cash returning lower funnel tactics.  This post will help you learn the various stages of the marketing funnel, the right tactics and metrics to explore at each stage of the funnel and how to translate that into an effective media mix.

What is the Marketing Funnel

A marketing funnel is the process of making prospective customers aware of your brand in the first place, and then nurturing them over time into buying customers.  The upper funnel is making sure you have brand awareness to prospective buyers.  The middle funnel is making sure your brand is actively being considered when a customer is actively researching their options.  And, the lower funnel is doing everything you can to convert known active in-market buyers to purchase your product. The next stages, typically forgotten by most companies, are getting your customers to become loyal repeat buyers, and more importantly, to become impassioned brand advocates spreading positive word-of-mouth referrals to prospective new customers.

To help visualize this, take a look at this graphic from Marketing Edge Magazine showing the typical marketing funnel:

The Stages of the Marketing Funnel

Let's provide a little more definition to each of the above funnel stages for clarity:

Awareness:  A person is aware of your brand, whether they are buying right now or not.  If someone asks, what is the biggest brand names in soda makers, the names Pepsi and Coke come immediately to mind.  Unaided brand awareness is best, as top of mind with customers without any help.  Followed by aided brand awareness when presenting a list of companies in the space, and them recognizing your brand on the list.

Interest:  A person begins to learn more about your brand and offering, perhaps reading about it in an article or seeing it promoted in an advertisement. 

Consideration:  A person is in-market for products you sell, and is willing to learn more about your specific product.  Often comparing your brand to others at this stage, perhaps on reviews sites.

Evaluation:  A person has narrowed down the list to a couple finalists, and is digging into all the details and differences between various brands, product features and pricing.

Decision:  A person has decided that this one brand or product is the specific one they want to move forward with, when they are ready to buy.

Purchase:  The person officially becomes a customer, swiping their credit card on their first transaction with your company.

Repeat:  That same person has purchased multiple times from your business.  That can either be the same product in higher frequency, or new products altogether.

Loyalty:  That same person is dedicated to purchasing from your brand, anytime they have the need.  They would not consider other brands given their past satisfaction with your brand.

Advocacy:  That person is so passionate about your product, they start to spread the "gospel" and positive word-of-mouth referrals to their friends and family.  And, even better, they are promoting your brand on social media to all their followers (which in turn, helps to profitably build your upper funnel with new prospects).

Using the Appropriate Media Tactics at Each Funnel Stage

This diagram from Visual Paradigm does a good job of showing how you need to tailor your marketing efforts to each of the specific funnel stages:

At the top of the funnel, you are trying to get as much reach as possible, to make sure the market is aware of your brand.  Large brands may do this in television advertising, and startups may do this in more affordable social media advertising.  Once a user makes an action that signals that they are in-market for your products, you want to make sure they are aware of you on review sites and the search engines during their middle funnel consideration stage.  And, once they engage with your site, your lower funnel tactics will take over with things like digital retargeting ads and email follow ups.

But, getting them to buy is only half of the exercise, now you want to get them to buy again (through your email newsletter promotions and joining your customer loyalty program).  And, you want to ask them for positive reviews of your products and to share their love of your product or brand with their social media followers, turning them into brand ambassadors.  As you know, acquiring customers through positive word-of-mouth for free is a lot cheaper than trying to acquire customers with expensive advertising upper funnel.

Using the Appropriate Measurement Metrics at Each Stage

One of the biggest mistakes a company makes is using the same marketing metric across each of the funnel stages.  For example, they compare their cost of acquiring a customer (CAC) to everyone one of their marketing tactics.  If they did that, they would immediate bias lower funnel tactics, as the CAC from in-market lower funnel buyers will be a fraction of out-of-market upper funnel prospects.  That bias may help them drive an immediate ROI on their marketing spend, focusing on the most profitable tactics, but it would hurt them in terms of investing upper funnel and building long term brand awareness with which to better scale the company long term.

To me, your upper funnel would be measured on a cost per impression (CPM) or cost per visitor (CPV) metric, your middle funnel would be measured on a cost per lead (CPL) metric, and your lower funnel would be measured on a cost per acquisition (CPA) metric.  If you set the appropriate metrics for each stage, you will have a much higher odds of scaling your business long term.  It may be a little less profitable in the first few months of "funnel building", but long term you will have a much bigger and more profitable business, than if you simply focused on the lower funnel alone.

Doing the Appropriate Media Mix Modeling 

I prefer to grow my business profitably, not on a grab market share at any cost basis to "own" the market in the short run and drive profits in the long run (after years of huge losses).  So, with that as my guide, I typically split my media mix: 20% upper funnel brand building, 30% middle funnel development, and 50% driving lower funnel conversions.  That will give profits a "fighting chance" for success in the near term, within a few months of starting a campaign.

But, the mix here can be highly variable based on your customer sales cycle.  Let's say you are selling expensive automobiles and customers only buy a car every 5-10 years.  That will take a really long time for your upper funnel brand building to pay back.  So, maybe you should focus more on middle and lower funnel tactics only, to drive a more immediate return on your investment.  And, on the flip side, let's say you are selling an affordable consumable with a high repeat purchase cycle (e.g., Starbucks Coffee).  In that case, you may want to invest more upper funnel, to quickly build up the brand awareness and lock out competitors, as any losses you may incur in the short run from your media spend, will be recouped from the repeat purchases in the following months.

Concluding Thoughts

Doing your marketing funnel planning and media mix modeling is not easy, especially for first timers.  So, make sure you surround yourself by smart mentors, consultants or ad agencies that have deep expertise in this area, to ensure you don't flush your limited marketing dollars down the toilet.  But, hopefully, you now have a better understanding of how it works to help point you in the right direction to building a truly great brand, marketing success, revenue growth and bottom line profit.  If you have any questions on this stuff, don't hesitate to reach out to one of our fractional CMOs to help you with your marketing strategies and planning efforts.

For future posts, please follow me on Twitter at: @georgedeeb.

North Carolina Venture Capital Trends

In case you haven't seen it, the Center for Entrepreneurial Development recently published its 2019 Innovators Report.  It contains  venture capital data going back to 2015, covering funding, funders, deals, and exits. The report explores a number of useful categories, including year-over-year comparisons, sectors, locations, funding and investor types and much more. 

Its great to see the entrepreneurial activity in the Triangle area (and the rest of the state) is doing well.  Kudos to the team at the CED for pulling this together.


For future posts, please follow us on Twitter at: @RedRocketVC.

Lesson #330: The Importance of Conversion Rate Optimization

Getting new customers to your website is hard enough, having to block and tackle up against all your competitors' advertising on Google, Facebook and elsewhere.  But, that is only half of the challenge.  The other half--the more important half--is getting those site visitors to convert into a lead or a sale.  And, that process of maximizing conversions is known as Conversion Rate Optimization, or CRO for short.  This post will help educate you on what CRO is, how to do it and why this matters to your bottom line . . . big time!!

What is CRO?

At the simplest level, CRO is optimizing the ratio of conversions, however you want to define them (e.g., transactions on your website, email lead form submissions, phone calls) as a percentage of the total visitors going to your website.  So, as an example, an average ecommerce website may have a conversion rate of 3%, when looking at the ratio of online transactions to website visitors.  But, there are wide ranges in conversion rates; a brand new startup with no brand recognition may only convert 1% and a huge trusted ecommerce portal like Amazon may convert 8%.  Said another way, there is an 8x difference in revenues to be had, whether you are at the low end of the range, or the high end of the range.  So, CRO is a critical part of maximizing your revenues, and needs more focus than most startups give it.

How is CRO Optimized?

First, you are optimizing for every variation of your user experience across devices.  There is not a one size fits all solution.  Optimizing for desktops, tablets and mobile devices are completely different.  And, more often than not, in today's world, mobile is the most important experience that needs to be optimized, given it represents the majority of inbound traffic for most companies these days (although many designers are still overly focused on desktop design).

Second, you are optimizing your user experience (UX).  That includes things like your site's usability, navigation, page design, process design, email form design and overall site speed (and speed really matters for Google to get higher up their search results).  This is changing things like page headlines, copy, voice, creatives, offers, calls to action, colors, sizes, messaging, etc., constantly A/B testing different variations of each, to see which one helps drive conversions the most.

As you study users playing with your website, you are going to learn where the drop-off points are in the conversion funnel.  How many site visitors, lead to product searches, lead to shopping cart additions, lead to starting the checkout process, lead to a completed sale.  Every step of that process needs to be optimized, from beginning to end.

Third, another part of CRO is seeing how your marketing efforts impact conversions.  Do any marketing channels work better or worse?  Any variations by customer demographics?  Do variations in landing pages from the ads, have an impact on conversion rates?  Do certain products convert better than others?  So, this is not only about optimizing the UX of your site, it is working in partnership with the marketing department to optimize what they are doing, to help maximize conversions.

How is CRO Measured?

There are many ways to study your UX, to learn how consumers are engaging with your site.  You can survey customers to learn what they like and don't like about your UX.  You can A/B test different variations of your page design, to see which version performed better.  You can study your Google Analytics data, and they have ecommerce funnel optimization tools, to learn where the drop-offs are happening.  There are many technologies that can help you learn here--things like heat mapping where a user's eyes are focused on the page, recording user web sessions, doing scroll bar mapping or using other software that can help you study your customer journey on your website (e.g., Content Square, Crazy Egg, Hello Bar).

Who Can Help Me With CRO?

And, if you don't have an internal UX team or enough time to do this yourself, there are many agencies that can help you audit your CRO and make specific optimization suggestions for as little as $5,000.  There are dozens of agencies that can help you here, but I know agencies like The Good, Mirgo Digital, Underwater Pistol, Thrive Digital, 1 Digital Agency and Boostability have expertise as CRO focused agencies.

Closing Thoughts?

Too often an entrepreneur is focused on getting a minimum viable product into the market as quickly and cheaply as possible, which is the norm for most lean startup launches.  But, your website experience is a key part of maximizing revenues, and it needs professional attention, sooner than later. 

Imagine you were shopping in a retail mall, and you walked by a store where the front door was half closed, the light bulbs were off and you couldn't walk through the aisles of the store without bumping into the racks of merchandise or other shoppers.  You would simply leave and move on to the next store that gave you a better experience.  It is that same logic online, with the hundreds of competitors trying get those same customers to visit their websites. 

So, with a little bit of effort here, you can materially increases your revenues and profits by expanding your conversion rates--the only metric that really matters at the end of the day.


For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #329: Leverage Market Downturns as Investment Opportunities

Chaos followed for most businesses in the wake of the Coronavirus:  the stock markets crashed, product demand fell and unexpected losses started to build up.  Most businesses did everything they could to batten down the hatches to help them best weather the storm, including stopping all discretionary investments.  But, should they have?  Most great investors, like Warren Buffett, have been quoted as saying their highest return investments were made during the middle of economic downturns.  So, theoretically, your highest return investments could be made right now, during the peak of the negative economic impact coming out of COVID-19.  So, instead of retreating right now, you may be best served long term by accelerating your long term investment efforts, if you have the capital to do so.  Allow me to explain.

Your Vendors Are Typically More Flexible During Downturns

You are not the only one whose business may be suffering from lower demand right now; most businesses are suffering from lower demand during downturns.  Which means they too are struggling to generate revenues.  And, when that happens, that is when they start to discount their prices, to try and drum up more demand and revenues.  So, if you were normally going to spend $1MM on things for your business, you could now be able to buy those exact same items for $800,000, as an example.  That is like adding $200,000 to your bottom line!!

There is Typically an Over-Supply of Good Talent During Downturns

In the last couple months, over 40 million people have lost their jobs in the wake of Coronavirus.  Most of them are really talented people that just happened to be in the wrong place at the wrong time.  Which is great for you!  These people are now looking for new jobs, and there is an undersupply of job openings.  Which means a couple things for you: (i) you should have the “pick of the litter” of resumes to choose from; and (ii) those candidates may be able to work for lower salaries than they would normally have worked, because they need a job.  So, your chance to “land the whale” in terms of great people at a great price will never be better than right now.

There is Typically Less Competition During Downturns

Many undercapitalized companies will not be able to survive an economic downturn.  Which means, instead of competing against 10 major competitors, you may only now be competing against 7 major competitors.  That 30% of revenues is now up for grabs, between you and your other surviving businesses.  If you get an equal share of that, your revenues will rise 30%.  If you aggressively market your business to taken an even bigger share of that, you could position your business to quadruple your revenues, taking the accounts of four companies instead of your one company.

Advertising Costs are Typically More Affordable During Downturns

The combination of companies going out of business and companies cutting their marketing efforts during downturns means, you should be able to see materially better returns on your marketing spend during downturns.  I know that is true for my Restaurant Furniture Plus portfolio company; that business has seen its cost of acquiring a new customer cut in half in the wake of Coronavirus.  Which means on the same marketing spend, I should be able to convert twice as many customers!

M&A Targets Are Typically More Affordable During Downturns

The same “bargains” can be had in the mergers and acquisitions world, so this would be a great time to try and roll-up a bunch of your competitors at lower than normal valuations.  As an example, let’s say a business that used to be generating $2MM of cash flow would have been valued at 6x cash flow for $12,000,000.  But, today, they are only doing $1MM of cash flow, and that business may only be worth 4x cash flow, or $4,000,000.  That is like buying a business at a 67% discount, when you know the demand and profits should return to historical levels as soon as the market conditions recover.  So, now could be the best time to try and find businesses to acquire to scale your business long term, at low valuations today.

Concluding Thoughts

As you can see, there are a lot of potential reasons you should be accelerating your business investment efforts right now, not reducing them.  Hopefully, you have some capital set aside to make these investments a reality.  But, if you don’t, this could be a good time to raise some capital, with a clear pitch to your investors that this is the perfect time to be “buying low” and “selling high” at a later time down the road, after the markets improve.  A smart investor should understand this concept of turning “lemons” handed to you by the market conditions into “lemonade”!!


For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #328: Creating a Symbiotic CEO and CFO Partnership

One of the most important drivers of a successful management team is the relationship between the CEO and the CFO.  The CEO is often times the headstrong, overly optimistic driver of the business; and the CFO is often the more mild-mannered, ultra-conservative controller of the company’s purse strings.  Too much of one, and the business will race off a cliff, and too much of the other, and the business will suffocate.  This post will teach you how to create that perfect harmony in the relationship between your CEO and CFO.

What Businesses Need

I think most of us would agree, most businesses are looking to grow their revenues at a pace that won’t result in the company running out of cash.  Typically, your CEO is focused on the first half of that mandate (growing revenues), and your CFO is focused on the second half of that mandate (not running out of cash).  If “growth at all costs” CEOs surrounds themselves with people just like they are, there is nobody on the team to “keep them in check”.  And, vice versa, if “cash pinching” CFOs surround themselves with people just like they are, there is nobody to help them “see the forest, through the trees”, propelling the business to new heights through some smart bets.  The right blend of business need, is somewhere right in between.

Your Typical CEO

Having been a CEO of multiple businesses, I can pretty much describe myself.  I am the perpetual optimistic—the glass is always “half full”.  I make most of my strategic business decisions on what will maximize revenues and profits five years from now, not what will maximize profits today.  I prefer to lead, than to be lead, and don’t like it when someone tells me why we can’t do something I want to do.  I have an A-type personally, and like to be around similar extroverts with bubbly personalities. 

Your Typical CFO

Having worked with many CFOs of multiple businesses, they can pretty stereotypically be described as follows.  They are chronic worriers—the glass is always “half empty”.  They make most of their day-to-day decisions based on what will spend the least amount of cash today.  They too like to lead, and have their voices heard, which can often be in diametrically opposite directions to where a CEO may be headed.  And, many have B-type personalities, often as introverted executives that function best from “behind the scenes”.

The Friction Created

Do you see the problem here, as described above?  CEOs and CFOs are often very different types of people, both in their demeanor and in terms of the ways they think and measure success.  The CEO-CFO relationship can often be a tug-of-war, and if not managed well, can lead to lots of internal friction and arguments between the two. 

But, that doesn’t need to be a bad thing.  On the contrary, it could be a very good thing, as both of them are working with the company’s best interests in mind—the CEO for the long term and the CFO for the short term.  The CEO and CFO should just acknowledge their differences upfront, know they are never going to get their way 100% of the time, and create reasonable boundaries for each other to “flex their muscles”, depending on the topic.

How to Create Harmony

To me, the right CEO-CFO relationship begins with recruiting the right people to start.  Speaking as a CEO, just know going in that you need to recruit a CFO that is going to protect the business first, and not “follow you off the cliff” on every one of your growth desires.  It is more important you find someone that has a good balance of short-term and long-term in the way they think, and will support your growth decisions if they are: (1) data-driven and logical; (2) will not create unnecessary strain on the company’s cash flow in the immediate term; and (3) can easily be funded by investors, if any startup investments are required to fund any expected deficits.   And, on the flipside, the CEO should support the CFO’s cost cutting decisions if they are: (1) data-driven and logical (sound familiar); (2) will not materially impede the company’s long term growth goals; and (3) if not following that decision, will potentially put the company out of business.  It is all about getting that right balance between the Yin (CEO) and the Yang (CFO).

Having Mutual Respect

In all cases, the CEO and CFO must respect the roles they each play in the business.  Don’t get upset if your desired actions are getting overturned by the other, but at the same time, don’t expect your desired actions to get overturned every time.  The right CEO-CFO balance is when they are both 50% happy, 100% of the time.  If either one is happy 100% of the time, you either aren’t pushing the business hard enough, or you are about to implode, one way or the other.

Closing Thoughts

So, as you can see, the CEO and CFO both play very critical roles in shaping the future direction of the company, and creating the right balance between the two, is often the right recipe for success.  You may not build as large of a company as you could have, but at the same time, you can rest assured you will never go out of business and will always be able to “live to fight another day”, in both good times and in bad.  Now, if you are a CEO or CFO, get up from your chairs, walk to the desk of your fellow executive, hug and make up, and pat them on the back for a job well done (despite what you may have thought about them before reading this article).


For future posts, please follow me on Twitter at: @georgedeeb.

5 Ways to Leverage Market Downturns as Opportunities to Make More Money

Chaos followed for most businesses in the wake of the coronavirus pandemic: the stock markets crashed, product demand fell and unexpected losses started to build up. Most businesses did everything they could to batten down the hatches to help them best weather the storm, including stopping all discretionary investments. But, should they have?

Most great investors, like Warren Buffett, have been quoted as saying their highest return investments were made in the middle of economic downturns. So, theoretically, your highest return investments could be made right now, during the peak of the negative economic impact coming out of Covid-19. So, instead of retreating right now, you may be best served long term by accelerating your long term investment efforts, if you have the capital to do so. Allow me to explain.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.