The topic "Building Strategic Digital Marketing From A - Z (Part 6)" has shown that we need to have a pre-strategy preparation stage with three-step strategy: SITUATION ASSESSMENT, METRICS DETERMINATION and ESTABLISHMENT OF STRATEGIC GOALS. However, www.GoogleAdsenseAds.com only analyzed of 2/3 steps. In this article, we together learn details of the final steps in the pre-strategy preparation stage, with the name: SETTING THE STRATEGIC GOALS.
Before entering to the establishment of strategic goals, there are some basic definitions that you need to understand:
Average basket size: Average price of an order = total revenue / number of sold orders. For example, you sold 3 orders with one order's value of VND 50,000, one order's value of VND 10,000 and the last one's value of VND 30,000. Total is VND 90,000 and divided by 3, the average value of your order is VND 30,000.
Profit margin: Profit margin is the percentage index of profits over revenue after deduction of all other expenses. For example, the company's revenue is 10 billion per month, but after deducting all expenses of offices, employees, electricity, water, taxes, money
CAC - Customer Acquisition Cost: For example, you spent VND 30,000 to run the ad and sold 3 orders, then CPO (cost per order) of the average cost you spent to sell one order is VND 10,000. However, among those 3 orders, 1 order was from a new client, two remaining orders from old customers. Hence, CAC is VND 30,000 - the amount you have to spend to get a new customer.
CLTV - Customer Life-time Value: how much money they will spend to buy products of the brand throughout the length of the relationship. For example, a customer on average buys goods once every 2 months and the average value of each sale is VND 100,000, CTLV of that customer for 1 year is VND 600,000. You can learn more about CLTV in the article Planned obsolescence.
To explain how to set a strategic goal, I would use a streamlined example for clarity: a clothing garment processing factory (Production), specialized in distributing to the clothes shops (Distribution) in Nguyen Trai. As of wholesale (B2B), this garment factory only sells with the minimum quantity of 100 pcs / order. But the retail store (B2C) is able to sell the quantity of each piece.
Garment factory (Production)
The average value of each product sold is VND 100,000 (Average basket size). In which ,the cost of materials (fabric, thread, buttons) is VND 20,000, the cost of production (workers, machinery, electricity) is VND 20,000. Besides, there is also the extra costs (waste, loss) is VND 5,000. Finally, the advertising cost to sell is VND 10,000 per piece. Actually, with wholesale B2B form, the advertising cost to sell one order (more than 100 pieces) is more but the average cost is only VND 10,000 for each sold piece. Now the profit for each sold piece remains after subtracting all costs of VND 45,000, so the profit margin is 45%.
Stores (Distribution)
After importing the product from the garment factory, they sell for an average price of about VND 500,000. Of which, VND 100,000 is the cost of imported products, the place costs is VND 50,000, the staff cost is VND 20,000 and finally, the advertising costs to sell a piece is VND 80,000. Now the remaining profit is VND 250,000 per sold piece and the profit margin is 50%. For every VND 80,000 of advertising costs, they will sell an order and then, out of 3 sold orders, there is one from a new customer. Thus, the cost to have a new customer (CAC) is 80,000 x 3 = VND 240,000. At the same time, the store also measured that a customer will come back to buy once for about 2 months in average. Now you can calculate what the average CLTV of customers is based on the average value they bought.
The foremost important thing for you to identify strategic goals is to understand the current business situation with metrics such as Average Basket Size, profit margin, CPO, CAC, CLTV as well as how much actual monthly sales is. From there, you set a benchmark figure that you want to develop to become a strategic goal. From that strategic goal, you can develop a digital marketing strategy and tactics to achieve it.
Example: every month the garment factory sells 2,000 pieces with the monthly revenue of VND 200 million, the annual revenue of VND 1.2 billion and the profit margin of 45%. The garment factory sets the strategic goal is to increase profits in next year up to 55% and revenue only increases VND 1.5 billion. In order to maximize profits, the garment factory needs to:
- Focus on improving the production process
- Reduce waste and material losses
- Find the source of fabrics with better cost
- Invest some machines such as buttons, close button, printing to cut the outsource costs
etc.
- Focus on improving the production process
- Reduce waste and material losses
- Find the source of fabrics with better cost
- Invest some machines such as buttons, close button, printing to cut the outsource costs
etc.
If you reach the goal, the profit of the garment factory next year will be VND 1.5 billion x 55% = VND 825 million compared with VND 540 million in the previous year (up 45%).
For the store, if they sell 5,000 pieces per month, its monthly revenue is VND 2.5 billion, its annual revenue is VND 30 billion and the profit margin is 50%. The store sets the strategic goal is revenue in next year will increase from VND 30 billion to VND 50 billion, and they are willing to accept lower profit margins as (40%). To increase sales by almost 40% (30 billion to 50 billion), the store should:
- Increase advertising costs (increasing the cost of advertising is sometimes synonymous with reducing the efficiency) - link
- Add promotions and discounts programs to stimulate demand
- Open new stores to reach more customers
- Add referral, membership programs to improve CLTV
etc.
- Increase advertising costs (increasing the cost of advertising is sometimes synonymous with reducing the efficiency) - link
- Add promotions and discounts programs to stimulate demand
- Open new stores to reach more customers
- Add referral, membership programs to improve CLTV
etc.
By reached the goal, the profit of the store in the next year will be 50 billion x 40% = 20 billion compared to 15 billion in the previous year (up 25%).
Through two examples, you can somewhat understand how to create the strategic goals. In fact, in the process of setting goals, you will need to rely on the index, the actual number in the past and at the same time, have to consider a lot of different factors such as inventory levels, changes in personnel, the impact of the market, seasonal changes, the increase in the materials' price, etc.
The figure that you set for the strategic goals must be backed up by market data, tactics with clear KPIs as well as the ability to perform. You cannot increase the annual revenue from 30 billion to 300 billion in one year or you cannot increase the profit margin from 45% to 90%. They are surreal numbers.
Strategic goals are very important. No matter how much time you spend, you must understand that it will be a platform for you to build all strategies and tactics around it. So, do not hurry or rush, take the time to think about it very carefully.
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