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HOW TO REVERSE ENGINEER YOUR MARKETING PLAN
YOUR BUSINESS STARTS HERE
Many construction business owners don’t have a marketing plan for their business.
They don’t know where to start.
Start with your Profit and Loss Statement (P&L) and reverse engineer your marketing plan from there.
(Read this article: THE #1 RULE YOU NEED TO HACK YOUR PROFIT & LOSS STATEMENT)
Your income, your cost of goods sold, your expenses, and your net profit – those items are your business. The P&L tells the story of your business.
If you don’t know how to read your profit and loss statement, get my book Profit First for Contractors. Or, if you’re more of a visual learner, check out the Profit First for Contractors Quick Start Training. It’s the fastest way to implement PFC into your business.
The P&L shows how your business operates, but your business starts with sales. So all the income that comes into your business is sales. That’s where your business starts.
SALES COME FROM CUSTOMERS
Your business starts with sales. You can’t have sales without customers.
Now, we’re going to reverse engineer how to make your business a profit from sales and customers.
Before people become customers, they are called prospects.
PROSPECTS → CUSTOMERS → SALES
You will talk to prospects about your services and get some of them to convert to customers, but not all of them.
Prospecting has to happen before you get customers. Then, leads become prospects, and prospects become customers.
Customers, ultimately, lead to sales.
LEADS COME FROM IMPRESSIONS
Before you get a lead, you need to have some impressions. People need to see, hear, learn about, or become aware of your company.
Before you get to sales, where your business starts, you get customers from prospects, prospects from leads, and leads from impressions.
IMPRESSIONS → LEADS → PROSPECTS → CUSTOMERS → SALES
All of that together is your construction business marketing plan.
Your business starts with sales, but before you have sales, you must implement a marketing plan.
REVERSE ENGINEER YOUR BUSINESS FROM THE START
Here’s how we’re going to reverse engineer your business.
Let’s take a look at an example. We’re going to be talking about a business that does $1 million in sales.
Let’s apply some math and start breaking it down. Whether you’re a smaller company or a larger company, the math and process is exactly the same.
EXAMPLE: TOTAL SALES PER YEAR = $1,000,000
Let’s say in general, this company has an average project size of $50,000. That means this company, in order to hit a million dollars in sales, needs to do 20 projects per year.
$1,000,000 per year / $50,000 per project = 20 projects per year
Those 20 projects are going to come from customers. So we need 20 customers.
TRACK AND CALCULATE YOUR CLOSING RATE
Before you have a customer, you must have a prospect. So, let’s determine what we call our closing rate.
CLOSING RATE % = # CUSTOMERS / # PROSPECTS x 100%
How many prospects do we need to talk to so we land 20 customers?
Your closing rate is going to be different depending on your business, so spend some time figuring out what it is.
No matter if you’re a service-based company, remodeler, or home builder, the flow is the same: Convert prospects into customers.
We’re going to use an average of a 33% closing rate for this example.
That means, for every one customer that we get, we have to talk to three prospects.
We’re going to take the 20 customers (or 20 projects) that we need and divide it by 0.33. That’s going to tell us we need to talk to 60 prospects.
If we close one out of every three of those prospects (33%), that will give us 20 customers.
If our average price is $50,000, those 20 customers will lead to a million dollars a year.
Now we know how many prospects and customers we need.
But before they become a prospect, they need to become a lead. Track leads on a monthly basis so you can determine your Conversion Rate.
CONVERSION RATE % = # PROSPECTS / # LEADS x 100%
In this example, we will use a 10% conversion rate.
So 10% of the people that we get as a lead become prospects.
We already know we need 60 prospects because that’s going to turn into 20 customers at a 33% closing rate. So how many leads do we need to get 60 prospects?
The math is simple.
Just divide 60 by 0.1, or 10%.
That means we need 600 leads coming into our company to give us 60 prospects. We only have to close one out of every three of those. That’s going to give us 20 projects. And if we’re maintaining our average project size of $50,000, that’s going to lead to a million dollars in sales.
WHAT KIND OF IMPRESSIONS DO YOU MAKE
This is where it gets a little bit fuzzy, and you’ve got to dig in and do the work. Impressions are your yard signs, your ads, your blog posts, your social media posts. So think of your impressions as eyeball efforts. People need to see you many times before they become a lead.
How many impressions do you need before you get a lead? Tracking impressions is easier for digital media and requires a bit more legwork for other forms of media.
DEVELOP YOUR MONTHLY CONSTRUCTION BUSINESS MARKETING PLAN
Back to our example.
600 leads convert to 60 prospects. We close one out of every three prospects, and that gives us 20 customers.
How can we reverse engineer our construction business marketing plan from these numbers?
So remember, we’re a million dollar company with an average project price of $50,000. That means we need 20 projects per year to hit our sales goal.
Take our leads, 600, and divide by 12 months. So we need 50 leads per month.
Now let’s look at our prospects.
At our 10% conversion rate, we’re going to need five prospects per month and close on 33% of those five, which equals 1.65.
We could just round up and say two.
(If we’re closing two per month, as opposed to 1.65), then we should plan for some growth because we will exceed the sales goal.)
BACK TO THE START
Now let’s go back to the P&L
This is where our business starts. We showed how we got sales and customers. Customers come from prospects, which come from leads, which come from impressions.
The math shows we need 600 leads per year, or 50 per month. That’s going to land us five prospects per month, and we should close 1.65 of these prospects (on average) to get the right number of customers.
HOW MUCH SHOULD YOU INVEST IN MARKETING
If we’re a million dollar company, our business is equal to $1 million and our net profit is 10%, that equals $100,000.
So the question is:
How much do I need to spend on my marketing?
I’ll answer that question with this question:
“Would you be willing to spend between 20k-50k in order to get a hundred thousand dollars?”
I would say, “If I’m spending $20,000 on marketing, it’s going to net me a hundred thousand dollars… That’s a pretty good investment.”
I may even be willing to spend $50,000 in order to get a $100,000 in profit. That’s a pretty good return on that investment.
What’s the right marketing investment for your construction?
QUICK RECAP:
Plug these numbers into your business model.
- Start with your total revenue → What are your SALES?
- Determine your average project size in dollars → What is your average project price?
- Calculate the number of projects you need to hit your SALES → How many CUSTOMERS do you need?
- Determine your CLOSING RATE. How many PROSPECTS do you need close to get the right number of CUSTOMERS?
- Calculate your CONVERSION RATE. How many LEADS do you need to convert to PROSPECTS?
- Design a filter to weed out bad LEADS so you can focus on good PROSPECTS.
- Set a monthly goal of LEADS to PROSPECTS and PROSPECTS to CUSTOMERS.
- Track and report your numbers every single month.
Reverse engineer these numbers starting with sales and working back to leads.
Now you can have an intelligent conversation with a marketing company and ask, “What kind of impressions can I expect from this particular campaign?”
You’ll already know the leads, prospects, and customers you require to operate your business.
Now you can focus on growing a purposeful, profitable construction business.
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