subject: Defining Direct Marketing "Success" by Calculating Return on Investment [print this page] Success in Direct Marketing is very easy to define and calculate. However, companies, especially in the small to mid-size business (SMB) community, don't take advantage of the inherent tracking and analytical capabilities direct marketing provides.
Historically, SMBs use local advertising vehicles (that were geographically, but not prospect/customer defined) such as: Penny Savers Val Pak, local co-op mailers or saturation solo mailings
Failing to test concepts before committing significant advertising dollars ignores direct marketing's major advantage vs. other media. We can take a small sample and test the concept before committing greater financial resources. Media, (lists, Search Engine Marketing, copy, creative, and offers can be tested). Assuming the initial test was successful, we can replicate the same test parameters and have a high confidence of success. If the initial test was unsuccessful or marginal, we can retest or eliminate that marketing concept. Either way, minimal financial resources were committed.
In many cases companies will commit xx Dollars and it is "make or break". Icall this "one shot" advertising. If it "does not work" then direct marketing (or other media) does not work never to be tried again. Companies should test different concepts, with a carefully constructed control and testing variable, before making a significant financial investment. Equally important, there should be a marketing budget with an actual line item for testing representing marketing dollars which may or may not work.
Too often I hear questions asking what is an "average" response rate. A response rate is not the single measure of success. Response rates are affected by many factors such as season, media, copy, offer and creative. They are also affected by the cost of the product/service. Generally as your cost of service/product increases, response rates decrease. A "lower" response rate does not automatically translate into an unprofitable campaign.
A successful marketing campaign generates a positive return on investment (ROI) ranks the performance of any marketing program regardless of media deployed because it calculates the promotional cost, sales and(cost of goods) COG to determine profitability. ROI normalizes analysis by providing a metric useful for any marketing campaign. It forces you to calculate performance, not initial media costs.
There are two general types of direct response programs. A "one step" program generates an order from an initial mailing, outbound call etc. A "two step" promotion is used to create a lead generation program. You capture leads and then follow up converting some to sales. In this case you have two costs. They are cost/lead and cost per order. You have to include both to calculate the program's ROI.
The list or media used is the single most important aspect of any direct marketing (on or off line) program. It accounts for approximately 40% of the program's success. The second most important component is your offer (another 40%). Targeting incorrectly can defeat the best offer.
Internet and interactive marketing programs have similar financial metrics as off line direct response programs. For example you have click through calculations (CTR) and conversion very similar to off line leads and sales conversion. We still have to calculate the ROI for each search, email marketing or any other media used.
In conclusion, using ROI calculations maximized your marketing dollars by using those media returning the highest bang for your marketing dollar.
