ROI
Return on investment (ROI) deals with the money you invest in a company or service and the return you realize on that money based on the net profit of the business. Companies are looking to get a return based on the money they invest in Scorpion.
Net Profit
Net profit, also referred to as the bottom line, net income, or net earnings is a measure of the profitability of a venture after accounting for all costs.
Gross Profit
Gross profit is a company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.
Job Values
Each job or service will have a specific set value to your client, uncover those values in order to calculate a true return for your client .
Estimated Gross Profit
We’ve learned that our clients average job value is around $325 and that they close 20% of the inquiries that they receive. Based on those two numbers, along with the fact that we know our client needs to gross around $26,000 to get their 7X return, we understand that they need at least 80 leads in order to reach their goals. Let’s do the math!
Cost Per Lead
Why is this important to understand cost per lead? Even if our leads are converting into jobs, the cost of those leads has to be worth the clients initial investment.
$5,200
Marketing Investment
400
Number of Leads
/
=
$
Cost Per Lead
Two More Handy Formulas
Use these formulas to calculate Cost Per Click or Cost Per Acquisition.
$5,200
Marketing Investment
450
Number of Clicks
/
=
$
Cost Per Click
$5,200
Marketing Investment
80
Number of Jobs
/
=
$
Cost Per Acquisition
Requisite Leads
What if we wanted to work backwards? Let’s review how to use the same equation differently depending on the information you have available.
$26,000
Clients ROI
Goal
/
$325
Average Job Value
=
80
Jobs Needed
/
20%
Close Rate
=
# of Leads Needed for ROI Goal
Keep in mind, although our clients may feel their close rate is consistent, it’s not uncommon for it to fluctuate. We always want to under-promise and over-deliver. Make sure your calculation includes padding to account for those inconsistencies.
Revenue and Marketing
Example Case Study
Typically, we agree that a 4x return is a relatively positive return on investment for our clients. However, when it comes to electrical, we would actually be costing that company money rather than providing a return. How do we know this? Well, let’s try and understand their business model.
The chart describes the distribution of funds and model surrounding the electrical industry. From here, we can deduce that profit margins are relatively slim, requiring a substantial return from advertising spend. For electricians, we can conclude that a minimum of a 7x return is required in order for a company to retain and sustain a profit.
To illustrate what calculating a client’s return on investment looks like, we’ll use Troutman Electric as an example.
This Electric company has two technicians that require about six booked appointments five days a week. Their monthly online investment with Scorpion is $5,000 and they are hoping for a 7x return.
Let’s learn how to calculate your clients return on investment, but first, a little review!
Let’s think, how much money would Troutman Electric need to profit in order to reach their desired 7x return?
Investment Math Made Easy
Let’s review some numbers and figure out exactly what we need in order to reach our clients financial goals.
ROI
Gross Profit
Net Profit
Job Values
How to Calculate ROI
$26,000
Gross Profit
$5,200
Marketing Investment
ROI
-
=
$
How to Make Clients Happy
Make Them Money
How do we do that? Produce leads that convert into paying clients. Clients = Money!
We’ve learned that our target gross profit is $26,000. In order to reach that, we need to gather the information necessary to determine how many leads we’ll need in order to produce the return Troutman Heating and Cooling is expecting.
Average Job Value
Estimated Revenue
Closing Rate
400
Number
of Leads
20%
Average
Close Rate
x
80
Jobs Booked
=
$325
Average
Job Value
x
=
$
,
Estimated Gross Profit
------------------
This is a 7x return on their investment.
Begin the next Lesson
,
.
Sources
Information Sources
