The Mysteries of Marketing

Exploring Referral Rates, Closing Ratios and True ROI

We are back in the saddle again and doing our finest Frosty the Snowman imitation by trying to stay in cool places, so we don’t turn into a puddle on the floor! Maybe that melting away is a good lead in for our subject matter today. Yupper. Marketing,

The truest obscure art form that Kitchen and Bath Dealers must somehow decipher so that they at least feel a little positive when throwing wads of money into something that has been explained using black magic and voodoo.

Let’s just say it’s a very interesting industry much like our own. Very few metrics that you can really sink your teeth into. I hate to be a broken record, but when you see such a wide swath of fragmentation among the businesses, you will understandably see less sophistication in the business model. That is not a slight in any way. It just comes with that type of industry landscape. As of 2024, there are approximately 54,216 Digital Marketing firms in the U.S. Need I say more?

These business owners seem to have inherited a certain gene that encourages overestimation when it comes to their wealth of knowledge. Thus, the learning skills have diminished over the years. ???Here is an example of a conversation I had with the owner of a marketing firm:

Me: “Don’t you think it would be important to track those leads and see how many of them turn into sales?”

????????????? MF(marketing firm): “I know what kind of reporting our customers need!”

????????????? ME: “And what’s that?”

????????????? MF: “They want to know how much their website traffic has increased and the additional amount of leads they are getting.”

????????????? ME: “Don’t they want to know how much of their investment turned into sales?”

????????????? MF: “That would be nice, but I think what we have is working fine.”

????????????? ME: “Why am I hearing Rod Sterling’s voice and the theme music from “The Twilight Zone”?”

That is just one of many conversations about the mysteries of marketing. Arrggh! Is it just me or did the abbreviation work well for marketing firm? LOL

Okay, it’s time to end the suffering of my story telling that you’ve endured already and get down to the brass tacks. I find math is the best tool to cut through all the noise to get some answers!

Say you are a Kitchen and Bath Dealer that does 2 million a year in retail sales. You have decided to spend 2.5% of that revenue to increase sales (50K). To keep the numbers round, let’s say you are paying your marketing firm 4K a month to help drive business to your doorstep. How much revenue should it generate to make the investment worthwhile?

I was recently told by a marketing guru that if you can generate 40K a month in sales that you would increase your investment by 400%.Well, I’m not exactly sure how they got to that number. Here’s how I figured it.$40K in sales at a 40% margin generates $16K in gross profit. Alrighty…let’s look at it another way. You invest 4K and get 16K. That means you are left with12K. On 40K in sales, that means your margin was reduced by 25%. What was a 40% margin now becomes a 30% margin. Ouch!

So, let me get this straight, I typically invest 2.5% of revenue towards marketing that just cost me 10% of the additional sales I get? That’s bad math any way you look at it, unless you apply the referral rate.

What is that you ask? Simply put, if you have ten customers and you get 8 referrals, then you are at .8. If those ten customers provide you with 4 referrals, then the RR (referral rate) is at .4. Twelve referrals are1.2. You get the idea.

The Second metric you want to look at is the closing ratio on those referrals. Hang in there and it will start to make sense (I hope).They are key to bringing all this together. See the chart below:

Wow! The absolute first thing that stands out is the huge impact the referral rate has on sales. Just moving from five referrals per 10 customers to eight referrals increases sales by $517K or 55%!! Closing ratios are certainly important and can help carry the day, but the referral rates are still going to be the main driver of sales.

What’s all this mumbo jumbo telling you? If you are not working with your marketing team on how to generate referrals, you are missing the boat. Big time!

Time is of the essence so I must leave you now more perplexed than you were before starting this blog. No matter. Please catch our Phase II Virtual Showroom Webinar on July 25th at noon EDT. Click Here to Register

Marketing, metrics, and virtual showrooms? I’m getting happy feet already!

Let’s rock this boat! Hope to see you there! thad