What Is Marketing Math? (Definition, Uses and Examples)

Its strange, but many small-business people have no idea what a good regular customer is worth to their business. By calculating that figure, you should gain a better idea of what youre willing to invest or risk to attract a good, regular customer. The calculation will also tell you how important it is to keep your existing customers happy. The cost of retaining a customer and even expanding a customers value is much less then getting a new customer.

3. What percentage of new customers become average regular customers? We call this the “conversion ratio.” This will undoubtedly vary depending on how that new customer was generated. For example, someone buying for the first time using an aggressively priced coupon would less likely be a repeat customer than one who bought based on a personal recommendation of a friend. To be more accurate, you may want to calculate this information based on several different criteria and then take an average.

4. What is the average life cycle of a new customer? Once you get a customer, how long will that customer continue to buy from you before he or she moves, gets mad, or no longer has a need for your product or service? This length of time can generally be expressed in months or years. It may be a more difficult number to get, but do your best.

How to Determine the Value of a New Regular Customer In order to figure out how much in gross sales a new regular customer brings you in a year, you need to define what a regular customer is. Through a careful audit you can determine this information. Obviously, “regulars” can range from several times a week or several times a year. So, set those criteria. For example, a typical fast, casual food operation may set that number at three or four times a month, while a more upscale operation may set it at three or four times a year.

Then you simply multiply that average regular frequency number by your average check. We use the average check, not the average guest, because for local store marketing (LSM) it will be a more accurate number, in that you have one person who influences the dining decision. For the purposes of illustration, lets say that we have determined that your average regular frequency is once a week with an average check of $10. By simply multiplying 52 weeks by $10, we then have calculated that the value of a new regular customer is $520 annually. As simple as it sounds, many operators dont bother to figure this out, which means theyre flying blind.

Whats Your Conversion Ratio? Theres just one more important piece of the LSM puzzle now. How many first-time buyers does it take to generate one new regular customer? In our experience, it ranges from as low as 12 percent to around 25 percent, though it can be as high as 50 percent for newer locations with super operations. The point is you should not guess. Your research tells you with certainty what you have to work with so you have no illusions of what its going to take to make your sales numbers. Lets say you determine that you get a 25percent conversion ratio. You know you need 193 new regulars to hit your goals. Therefore you need four times as many “first-time buyers” to end up with 193 regulars.

Simply put, by bringing in 772 first-time buyers (under the right circumstances), you are very likely to end up with 193 new regular customers. Those 193 will generate an additional $50,000 in this year and another $50,000 in the following year. So your goal will be attract between 64 and 65 first-timers each month on average.Related: Three Steps to Effective Sales Promotions

Marketing math is what tells you whether your marketing is working. However, the right calculations are probably different than what you’ve encountered so far in business finance.

Basic Marketing Math That Every Marketer Should Know

Uses for marketing math

Math for calculating marketing metrics provides valuable insight into the methods businesses use to engage customers, promote goods and services and track expenses and revenue. Consider several more uses for calculating marketing metrics:

Statistical analysis

Statistical analysis can tell marketers about the relationships between promotional messaging and purchasing outcomes. Marketing analytics that provide insight into consumer behavior, preference and purchase habits support statistical analysis that helps businesses determine profitable approaches to branding and customer engagement. Statistical data is also important in marketing because it shows businesses the financial data related to marketing activities, which is useful for creating forecasts and projections of future performance.

Competitive analysis

Analyzing the market and competitors is another useful application of marketing calculations. Businesses and brands can collect information about competing businesses to understand how different strategies perform in the industry. A competitive analysis also requires statistical data, giving businesses additional insight into how marketing approaches affect industry position, reputation and growth.

Forecasts and projections

Marketing and advertising math is also applicable to forecasting and projecting future returns from marketing spend. Important financial calculations regarding important promotional activities often include fund allocation, cost analysis and budget management. Understanding math for marketing is essential to measuring important data businesses use to manage marketing finances.

Strategy development

Marketing professionals also rely on math and analytics to determine viable strategies for developing and distributing campaign promotions. Monitoring campaign metrics also help businesses understand which approaches are most effective for reaching customer markets, building interest in products and services and increasing sales. With deeper insight into how audiences receive and engage with promotional messages, businesses can better determine how to approach future campaigns and strategy development.

What is marketing math?

Marketing math encompasses the calculations businesses perform to understand the impact marketing activities have on brand recognition, market position and product and service sales. Performance, productivity and financial metrics also show up in marketing metrics, as many promotional operations monitor these measurements so businesses can evaluate the results of various strategies. Several metrics this type of business math assesses include:

Types of metrics with marketing math

There are many types of marketing metrics you can use mathematical calculations for, including:

Performance metrics

Marketing performance covers a broad range of factors that influence customer interactions, purchases and continuing engagement with a business. Math and statistical analysis can help professionals evaluate how effective promotional campaigns are. Several calculations in this area of marketing math include:

Sales metrics

Sales metrics can be helpful for identifying purchases resulting from marketing engagement and approaches to acquiring customers. Measuring these metrics can provide insight into how promotional activities influence sales:

Financial measurements

Financial metrics are critical for planning budgets, projecting costs and monitoring spending. Professionals often evaluate these types of metrics to assess how spending, investing and financing in marketing affect profitability. Consider several metrics you can calculate to better analyze marketing finances:

Example of calculating marketing metrics

A company is assessing several key metrics using mathematical calculations so sales and marketing teams can measure effectiveness and success. The calculations the teams perform cover marketing ROI, customer acquisition cost and lead conversion rate. The sales team also calculates the expense-to-revenue rate to understand how marketing spending influences revenue generation. The marketing team uses the following calculations:

Using the formulas, the marketing and sales teams calculate each metric using the following data:

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