Test and measure, again and again

It's called testing and measuring. But most people hate it, particularly in smaller businesses. That's because it means there is a chance that every marketing strategy you try will not work the first time. In other words, it's possible you will spend money without seeing any return.

But consider this: You have been testing and measuring all your business life, albeit in general terms, so the concept is not new.

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However, if you don't know where your customers come from, you won't know which marketing, sales or promotional campaigns are working or even how much each sale is costing you.

Testing means evaluating what works, then putting financial parameters to the measurements. The fundamental objective for marketing in any business is to provide the basis to:

•  Maximize the conversion rate into buying customers/clients.

•  Increase the number of transactions per customer per year.

•  Increase the average dollar sale per transaction.

•  Improve revenue margins to result in maximum profits for the business.

The next step is to do the testing and measuring of marketing information as a matter of process. With this information, you'll have the power to make effective decisions including which marketing campaigns to accelerate, which to cancel, which to improve and how much should be spent to maximize the bottom line.

The testing and measuring information allows for the business leverage of limited resources. For example, the leads generated might be high but the conversion rate is low, or the other way around, and this will indicate which area needs to be improved. Or perhaps both leads and conversion rates are high, but average dollar sale is low because the sale mix is weighted to low-priced items rather than high-priced items. Once you really know which areas need improvement, you can begin to make informed marketing decisions.

Here are three steps for successfully figuring out what works and what doesn't work:

Because customers usually come from many sources, formal or informal, it is impossible to judge the extent to which each marketing strategy is generating sales on its own unless you build measuring into the process.

Perhaps you got more customers from referrals in a particular week, or there may have been a festival in town with a tie-in promotion. Every time a person contacts your business as a potential buyer, ask them, "By the way, may I ask where you heard about my business?" People will not have any problem telling you. And, after the lead is converted into a customer, you can correlate the purchase with the successful marketing tool to identify the most effective ways to generate customers.

Start right now to ask your leads where they heard about your business; then you can really begin to make effective marketing decisions.

Now you have two options: Channel the marketing funds elsewhere or improve the program to ensure you get a response that exceeds the break-even point.

If you choose to improve your advertising program, there are a couple of steps you can take to make the task simpler. First, go back over your past ads and evaluate which ones you think were effective in generating leads and conversion to customers. Pull out the best couple and determine what gave them their edge. Second, look at what your competitors are doing. Do they have an ad they consistently continue to run? What can you learn from it? Then create an ad to be tested and measured.

Go through this process with each marketing tactic you use � cancel, examine, modify, test and measure. Remember, the true test of a marketing strategy is whether it pays for itself. If you run an ad and it costs you $1,000 and generates a contribution profit margin of $1,300, then it is a good ad and you should continue to increase its use until its contribution profit margin drops to $1,000 by measuring the results to a financial break-even.

Also, examine each of the successful marketing tactics and evaluate why they are producing positive results. See if you can identify the one most important customer-oriented feature about each.

Now determine ways to use each marketing tactic that is working on a larger scale. If it is fliers, the answer is simple: Drop twice as many fliers to your target audience. That should bring twice the sales. If it's an ad, give it expanded reach or increase the ad size for greater visual impact. Do the same thing on a larger scale and keep measuring the leads generated from the revised or increased tactics.

3. Check the conversion rate from leads to customers. Conversion is the number of leads/inquiries that become sales. Unfortunately, frequent analyses of businesses will show that it is not the quality of the execution of the marketing tactics that is the key determinant of sales effectiveness, but the results are often controlled by inadequate sales techniques. There are many businesses that have ample leads, but they lack effective skills to convert them into sales.

Again, it is testing and measuring that will provide the real information to know what's working and what's not. As surprising as it may seem, very few small businesses actually know their conversion rates, but they will always give you an estimate. These estimates are consistently about twice what the conversion rate turns out to be when measured. Business owners tend to show great disappointment when their estimated 50 percent conversion rate turns out actually to be 25 percent. They see this as a poor reflection on their sales performance rather than an opportunity for faster growth. Just think how difficult it would be to double your conversion rate from 50 percent compared with 25 percent.

In most analyses of small businesses, improving the conversion rate provides the quickest and lowest-cost effort to increase business revenues. You just have to give the new potential customer a reason to buy from your business.

Price is not the only reason a customer buys products or services from your business; what if the sales people showed a personal interest in your customers' needs? What if they were a little bit friendlier? What if they used more effective sales scripts? What if they were willing to back up the product with a guarantee? What if they offered free delivery?

It's a matter of knowing the needs and helping a customer make the decision to buy your product. All of these ideas can be tested and measured to see what will improve the conversion rate from your current standard.

So what are the keys to successful testing and measuring? Be vigilant, disciplined and consistent. You cannot test and measure half the time; you must do it every hour of every day.

It is not a difficult task when you build testing and measuring into the operating procedures that specifically relate to the nature of your business. Enforce the process to record every lead/customer interaction with your business and make sure that every employee complies.

Stress the importance of this process for the financial growth of your business. Experience indicates that only two out of 10 marketing campaigns for small businesses will generate a positive contribution to the bottom line. It is crucial to quickly know which campaigns are generating your business success.