How Much Should Funeral Directors Spend on Advertising?

Colin

Colin

16/05/2018

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Welcome to Module 8 of our online course for funeral directors.

This month, we’re looking at how much funeral directors should spend on digital advertising.

Digital advertising can be a daunting area, with dozens of different platforms and channels to choose from: Google AdWords, Bing Ads, Facebook Ads, Yellow Pages Online, dozens of other directories, and even our own funeral comparison website, Gathered Here.

How do we figure out which channels are cost-effective, which are a waste of money, and how much to spend on each?

Thankfully, answering these questions isn’t as hard as you might think, because one of the key advantages of digital advertising is that it is possible to calculate the exact cost of acquiring a new customer. This can then be compared with the lifetime value of a customer to make good decisions in relation to advertising spend.

But before we skip ahead too far, let’s start with the basics of customer acquisition metrics.


Customer Acquisition Cost

Customer Acquisition Cost (CAC), as you might imagine, is the cost of acquiring a customer.

CAC in Traditional Advertising

CAC is difficult to calculate for traditional advertising channels. Imagine you put on a radio advertisement. There’s no way to track how many people hear your ad and how many people then contact you as a result of hearing that ad. Essentially, you pay a sum of money and hope your business increases.

CAC in Digital Advertising

CAC is much easier to calculate for digital advertising channels. Imagine you put up an ad on Google AdWords. If you set up your system correctly, you can track the entire customer journey from beginning to end. Particularly, you can see:

  • (Impressions) How many times your ad was displayed
  • (Clicks) How many clicks your ad received
  • (Enquiries) How many of those clicks went on to complete an enquiry form
  • (Customers) How many of those enquiries converted into a paying customer

From this data, you can then accurately calculate the CAC for the Google AdWords channel. Let’s look an example with sample data:

  • A funeral director uses Google AdWords to drive traffic to their website and pays $5 everytime a person clicks on the ad
  • It takes 20 clicks for 1 customer to complete an enquiry form
  • It takes 5 enquiries from AdWords to convert a paying customer

In this scenario, the Customer Acquisition Cost via Google AdWords is $5/click x 20 clicks/enquiry form x 5 enquiry forms/customer = $500.

At this stage, you might think that paying $500 for a single customer seems expensive. Right?

It’s all relative.

In order to assess the AdWords marketing channel, we need to understand what a customer is worth by calculating the Customer Lifetime Value.


Customer Lifetime Value

Customer Lifetime Value (CLV) is the projected value that a customer will generate during their lifetime. Let’s look at an example.

Immediate Customer Value

Let’s assume that, on average, a funeral director charges $6,000 per service and has a profit margin of 20%.

In this scenario, the immediate value of a customer is $6,000 x 20% profit = $1,200.

Repeat Customers

In addition, the funeral director knows that, on average, each customer will use their services 1.5 times (i.e. customers may use their services again for a second parent or siblings).

Factoring in repeat customers, the customer lifetime value grows to $1,200 x 1.5 = $1,800.

Referral Value

Finally, the funeral director knows that each customer will refer their services to other people they know, leading to 2 new customers. Let’s assume that one of these new customers would have selected their funeral home even without the referral, but the other new customer only selected their funeral home because of the referral.

At the surface level, the funeral director can safely calculate that the referral value per new customer is one net new customer (i.e. +$1,800). Looking further, the funeral director can also calculate savings in acquisition costs for the customer who would have selected their services even without the referral, and take into account the fact that these new referral customers will also refer new customers of their own (and so on).

However, for now, let’s take a conservative approach and assume the customer referral value is +$1,800.

Calculating CLV

Putting it all together, we can calculate CLV = $1,800 (Immediate & Repeat Customer Value) + $1800 (Referral Value) = $3,600

The prudent funeral director might discount this CLV to take into account the time value of money, as the cycle of repeat customers and referrals takes place over many years. Doing so at a conservative cash rate would take the CLV down to approximately $3,000.


Customer Acquisition Metrics and Decision Making

Now that we have calculated the CAC and CLV, we can begin making good decisions in relation to advertising spend.

At this stage, it’s up to you to determine what portion of your profit margin you want to preserve. While you can hypothetically spend up to your CLV to acquire a new customer, most funeral directors are not going to be spending $3,000 to find new customers.

Applied to the example above, we might determine that a $500 CAC for the Google AdWords marketing channel is acceptable in the context of a $3,000 CLV.

Using this same methodology, let’s look at some other digital advertising channels:

Directory Listings

You might consider listing your funeral home in an online directory, such as Gathered Here or the Yellow Pages.

Gathered Here charges $49 per listing/month and the Yellow Pages charges $99 per postcode/month. To cover a sizeable zone you might take 3 listings on Gathered Here (i.e. $147/month) or 20 postcodes (to cover an equivalent area) on the Yellow Pages (i.e. $1,980).

What will be important when testing these channels is to ask your leads where they found your services, and keep track of how enquiries from each source convert into paying customers.

If each source results in 2 customers/month, then the CAC for Gathered Here is $73.5, and the CAC for the Yellow Pages is $990.

Pay-per-Lead

Some websites collect quote request details from customers and then send these details out to funeral directors for a fixed price. Funeral directors then contact the customers and provide price quotes for the services requested in the quote. Costs can range from $50-$70 per lead.

If you pay $50/lead and convert 1 out of 10 leads, the CAC for this channel is $50 x 10 leads = $500.

Success Fee for Customers

Similar to the Pay-per-Lead model above, Gathered Here sends out customer quote requests to funeral directors but on a Success Fee basis, where payment is only required when the lead turns into a paying customer. I.e. funeral directors only pay for real business.

If the Success Fee is $330, the CAC for this channel is $330.

As you can see, this approach gives funeral directors complete certainty on what they will pay per customer. In contrast to the Pay-per-Lead model, there is no risk of paying for dummy leads, poor quality leads or failing to convert leads into customers.

Please note that the above are just examples. What will be important is that with each channel, you properly track your leads and customers in order to make data-driven decisions.


Conclusion

Digital advertising offers a new way to market to and acquire customers. A significant advantage of digital advertising is that funeral directors no longer need to make blind decisions in relation to marketing efficacy or spend. Customer acquisition metrics offer a factual framework for to make good decisions.

Without a doubt, there are poor products and bad channels that funeral directors can fall into. However, for those who are willing to explore, test and measure new channels, there is a world of opportunity to efficiently acquire new customers at scale. Moving forward, it’s the funeral directors who find and optimise these channels that will reliably and predictably grow their businesses and find success into the future.

If you have any questions about paid advertising channels and customer acquisition metrics, please don’t hesitate to get in touch with us at enquiries@gatheredhere.com.au.

<< Module 7: Introducing Interest-Free Finance for Funeral Directors <<

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