Marketing Metrics FAQs

Question:Where can you find a good resource to learn more about marketing return on investments?

Essentially, calculating a marketing return on investment works like this. Figure out all the ways that a client could save money by using your product (e.g., including marketing training cost savings, finding new marketing employees, time to market, etc.) that would fall under the heading of marketing. The fuller the list the better. A an individual customer would them be able to indicate in what areas your product provides savings and how much. Since companies and individuals can't usully provide an overall answer easily, you might break it down, say into months and then aggregate up to a given time period (say, a year). The marketing return on investment then is how much money they save, say in a given year, divided by the costs of your product for that year. It really is simple in concept, but difficult in practice since you need to help the client understand the sources of savings (many of which can be quite subtle). Check back here soon as we will be adding a new tutorial on this rather broad subject.

Question:How do you calculate the return on investment for a direct mail campaign?

To make a simple calculation for the ROI you need the following information: (A) The total costs of the campaign (B) The total number of direct mail pieces (newsletters) (C) The response rate from the newsletters (what percent of the people who got your direct mail, for example, clicked through to your site?). (D) The conversion rate (what percent of those who clicked through actually bought something) (E) The average amount of sales per person who bought something based on the direct mail. The ROI = ((B*C*D*E)-A)/A You can refine this figure by actually calculating the exact amount of sales from all the people who bought something that came from the direct mail campaign (use this number instead of (B*C*D*E). You'll find some calculators on the web that expect you to estimate the response rate, and if you think you should do this, great. For email, some people estimate response rates as high as 18%, but as low as 2% for direct mail. Realize, however, these are just estimates and a better way of calculating the ROI is on actual return, not expected return. Having said that, we realize you might have to estimate the ROI to justify a campaign. Just appreciate that these estimates are really just guesses when it comes to your situation. An 18% response rate for email might be wildly high when it comes to your situation, your industry, and your customers. Frankly, we've talked with companies who revealed that this rate can be much, much lower! Now, having said all of this, if you want to calculate your newsletter ROI, expanding on the relatively simple issues we just discussed, we suggest you read our article on the real story about ROI on newsletters. As the name implies, you will be able to not only calculate the real ROI for a newsletter, but gain a better understanding as well.

Question:What is a breakeven analysis and does it have any limitations?

Breakeven analysis is simply a technique for determining whether what you sell will make any money or not. It is often requested in business plans. Its form is quite simple. If you assume that you can price your product at P, the fixed costs are FC, and the variable costs to produce the product is VC, then you can calculate the quantity of the product you need to sell just to breakeven (that means you just cover your costs and don't make anymore money) as: Breakeven number of units = FC/(P-VC) So, if the price of the product is $5, the variable costs to produce it is $3 and the fixed costs are $1000, then the breakeven number of units is = 1000/(5-3)=500 units. While breakeven analysis is a useful marketing analytical tool, it does have limitiations. These are typically due to the lack of precision in the numbers (e.g., what is the actual price, is it purchase price or life cycle price) and getting the precise figures for fixed and variable costs. Beyond that, it is limited by its total focus on the quantitative elements of a business plan and doesn't consider competitive reactions, customer needs, etc.

Question:How do I determine the lifetime value of my customers?

Here is a handy calculator you can use to determine your customer's lifetime value. Click here to use the calculator. To use this calculator most effectively you focus your calculations on a "typical" customer and then multiply the lifetime value of this typical customer by the number of customers you currently have. In this way the calculator will give you a rough idea of what your customers are really worth.

Question:How do you determine the ROI of a large marketing program?

Now with budgets tightening and companies demanding an ROI on their marketing budget more than ever, we get a lot of questions about how to determine the ROI of a marketing plan. The ROI of a marketing plan is different from that of an email newsletter. Email newsletters are a specific tactic, and typically well defined. In fact, we have some great calculators on our site that will help you determine the ROI of e-newsletters. But what if you’re responsible for a major marketing effort that includes public relations, advertising, on and offline marketing, new branding campaigns, and other major marketing efforts? What if you’re in a B2B situation where marketing plans can get very complicated. Simple calculators fail miserably here, and there is a good reason for this. It all depends on your objective Calculating the costs of a marketing program is an important part of determining the program’s ROI. But identifying the costs is actually one of the easier parts. The far more difficult component of the ROI is determining how effectiveness of the marketing plan. But what do we mean by effectiveness? Well, if you actually go out and survey various companies about how they calculate marketing ROI you’ll get several different answers. For example, some may say that effectiveness is determined by increases in sales volume (that is, obviously, the most likely response), but others may say effectiveness is actually the number of leads generated by a marketing tactic or program. In fact, it gets messier. Here are some of the ways you can determine effectiveness. Number of press releases or pieces of mail, number of new customers, number of web hits or visitors, awareness changes (or the extent to which people are more aware of your product), impressions (number of articles in the press multiplied by the potential readership of each publication), content analysis, recall measures, and on and on and on. If you’re responsible for marketing, you may be getting depressed right now. But the reality is that many firms do not have clear marketing plans, so having a clear understanding of the ROI for a plan is difficult. They key is to first establish which objective you want to have for your marketing plan. Is it sales volume, web visitors, or what? This is the key to deciding on how to determine your marketing ROI.

Question:I'm in "whatever" industry. How do the marketing principles change for my industry?

We get lots of questions about whether marketing in one industry is radically different than another. Our position is that except in cases where you are dealing with very high luxury goods or fashion, where hope is a driving force in many decisions, the basic rules of marketing still apply...segementation, positioning, branding, etc. Many people thought the internet would change these rules, and for the most part they have been wrong. So we would suggest that the first step when thinking about marketing in your industry is not to start looking for some new ideas, but see how the basic principles apply to your situation. More than not, you'll see that marketing in your industry is fundamentally no different than in other industries.

Question:How do I measure my marketing, especially considering I don't have a large budget?

It is critical to look at the numbers. Without quantifiable measures it is impossible to guage success. Here are some basic steps to get you going: * Define clear measurable market impact goals. ­ * Estimate the expected and desired market impact of each activity (some activities may have more than one type of market impact). ­ * Prioritize your budget based on estimated results and cost per market impact. ­ * Diligently measure whatever you can. Direct all traffic to your website and use separate landing pages and tracking codes for each activity and source of market impact. ­ * Estimate whatever you cannot measure directly; imperfect measurements are still better than no measurement at all. For more detail, see How to Measure Your Marketing

Source: marketingprofs.com

 

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