In South Africa, financial industries — especially the top insurance companies — invest more money into paid search than most of the remaining industries put together.
The reason for this is because these industries track the lifetime value of a customer and not just the initial sale value.
Looking at profitability from a different angle allows marketers to see the true value of a 'new client'. Car insurance, for example, is one of the most expensive keywords globally and can cost advertisers R650+ per click, depending on how much they're willing to pay to compete against other insurance brands.
This is an astronomical
amount of money. If brands wanted to truly compete in this space, they could be spending R150 000+ a day on paid search alone. So how can it be possible that insurance brands invest 30%+ of their entire marketing budget on this channel?
Simply put, it's what companies call a 'p-factor' or 'profitability factor'. This is a simple profitability equation that allows brands to measure the value of a sale over time. Let's use car insurance as an example. If you're insurance company X and you spend R5 000 on Google Ads today, you'll most likely generate quite a few visitors to your website who will either complete a quote online or want to talk to a sales advisor.
As a result of the quotes generated, you may sign up a new client who would hypothetically insure their vehicle at a monthly premium of R1 000. At a glance, you might say that this channel is loss-making as the amount of adspend far outweighs the sale value. But the inverse
is actually true.
Car insurance is a service that consumers sign up for on a monthly basis, which means that, as Insurer X, the company will be generating revenue from the initial sale over a long period of time. This is where the p-factor comes in. This equation helps you understand how long your new customer will need to stay insured with you before you cover the initial R5 000 adspend.
Ad Spend divided by initial sales value is the equivalent of p-factor. So, R5 000/R1 000 is equal to a p-factor of five. This means that the new client will need to stay insured with the brand for five months before it 'breaks even' on advertising spend.
If you then incorporate the fact that the average insured person stays with their insurer for 12 to 18 months, the profitability conversation very
quickly changes to a positive one. In this example, the company would be making money from the new client from anything between seven to 13 months.
Every industry is, of course, different with their own unique challenges, but the learning for marketers has to be that the future for brands is not only tracking a customer's journey online until the sale is complete but tracking the customer for the entire time that they're associated with your brand.
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