Formula to Revenue

How Should A Beginner Start Marketing? Math.

March 5, 2019

Recently, I was talking with a friend about work and made the following comment, half-joking:

Every conversation I have with a potential new client starts with math.

The more I thought about it, though, the more I realized that early in my career, I was focused on tactics, creative and growth hacking. Those are all important, but when I had the opportunity to work with high-growth startups, then scale one of my own, I learned the critical lesson that all of those (good) things need to happen in the context of how a business scales mathematically.

In fact, I thought, the next time someone early in their career in a growth role asks me for advice, I’m going to tell them to focus on learning the math of growth before learning the tactics. That opportunity came earlier than expected when I ran across this question on Quora:

How should a beginner start marketing?

I’ve included my response below, but you can also read the original response (and other responses) on Quora.

Yield’s Answer: How Should A Beginner Start Marketing?

There are lots of great suggestions here and tons of helpful, free content out there on the web.

If I had to give you one piece of advice, though, it would be to study the basic math underlying business growth. Specifically, you’ll want to understand marketing as a variable in that math equation.

It’s common to think about marketing (or sales, or “growth”) as primarily tactics. Facebook ads. PPC. Content. Native. Etc. Etc. The core question you’ll eventually ask with any tactic or channel, though, is “how do I know if this is successful?” There are many signals of success, but one of the core mistakes I see beginners make is optimizing to a ‘local maximum’ by looking at a tactic in a vacuum. One very simple example of this would be judging success of a paid digital campaign on impressions alone. Impressions might be important, but if that’s your primary metric, you’re setting yourself up to optimize towards an outcome that might not have any impact on the actual revenue the business generates.

Revenue should always be the result used to evaluate marketing efforts. The actual number that serves as the goal might vary by business model (i.e. cost per acquired customer, total lifetime value of a customer, etc.), but the accountability is the same: is your marketing activity actually growing the business?

As my friend Soren Ryherd says often, truly effective marketing efforts are planned, executed and scaled by being mathematically tied to financial outcomes of the business.

Almost any business that requires marketing can be broken down into a few, simple variables that can help you begin to understand the role that marketing plays.

Here’s a basic example to get your wheels turning: How do you know how much you should pay for a customer?

You can begin to answer that question with a few business metrics: churn rate, retention period, gross margin, monthly customer spend and lifetime value of the customer (LTV). Here’s a really simple example for a SaaS business I pulled together to illustrate the basics:

Basic funnel math example for beginner marketers
A simple example of what we call the "formula to revenue"

Once you calculated your target CAC (cost per acquisition), you have a benchmark that should be the basis of all your marketing efforts. Instead of just trying a bunch of tactics, you can:

  • Build out a marketing budget and forecast to reach goals based on unit economics, not opinions
  • Clearly evaluate performance of marketing channels, mediums, etc. as you test tactics
  • Begin to focus your time and efforts on the variables that will have the highest impact (i.e. getting more leads VS decreasing churn VS up-selling current customers)
  • The exact math and metrics might vary depending on the type of business (i.e., B2C vs B2B), but the basics apply no matter what type of business you’re working in.

A great place to dig deeper is David Skok’s article called SaaS Metrics 2.0. The post focuses on subscription software business models, but there’s lots of rich information on the math of growth that conceptually applies to any business.

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