10/09/2023
There's a lot of talk these days about contribution margin amongst the marketing community, especially on Twitter. And honestly, this is a great thing. For a long time, most marketing professionals were completely ignorant when it came to how their efforts impacted the P&L and vice versa. But, many still don't fully understand contribution margin and how to look at it over the life of a customer.
You may hear the term LTV from time to time and this is what we are talking about. Because yes, your contribution margin will be negatively impacted if you use a promotion as a lead gen tactic. And these days CMOs, agencies, and the like are starting to wonder whether or not those lead gen promos are worth it. A valid question.
To answer that question (are lead gen promos worth it) you must look at the LTV of your customers and understand how the promos impact margin. Ask yourself:
🤔 Would you have been able to bring in subsequent revenue from additional purchases if you didn't get that email address?
🤔 Would the subsequent revenue have been as high?
🤔 Was the revenue incremental to your business?
This is how you should decide if those lead-gen promos are worth it. Don't give away margin just to give it away. That's not what we are saying at all. But what we are saying is, that we tend to see the lost margin up front creates incremental revenue on the backend that easily makes up for the discounts. Keyword = incremental.
If your brand is seeing this too - incremental revenue - revenue you wouldn't have been able to capture without that email address, and email addresses that you likely wouldn't have captured without that discount, then you should keep running lead gen promos to pull in those contacts.
If not, well, then take a look at the systems you have in place after you capture an email address and make sure those are working. If they are, then you're in a position to say, I don't think the lead gen promos are working.
What do you think about this? Do lead gen promos work for your brand? Are they worth it?