Have you gotten bogged down with numbers that don't matter?
The success of your direct mail campaign is ultimately
measured, not by bounce-backs or number of responses, but
by one simple number: your return on investment (ROI). As
the owner of your business, you must know this number for
every marketing campaign you run.
You may believe every campaign number is important--list
size, bounce-backs, leads generated, number of responses,
number of appointments, and number of sales. At the end of
the day, there's only one number that can tell you if your
campaign was a success or a failure.
This might sound unrealistic; you may wonder if you can
really judge an entire campaign based on one number. To
illustrate this reality, we'll examine two real-world
examples, and then we'll look at how you can measure ROI
for yourself.
Let's start by taking a look at two very different
campaigns. As we go through them, decide, if you were the
business owner in each, would you consider the campaign a
success?
* Lots of sales, small profit each. In our first example,
Jon sells a paperback book. He sells copies at a $2 profit.
He sent out 10,000 postcards at a cost of $3700. As a
result of that campaign, he sold 1500 books which is a 15%
response rate. But because his profit on each book is only
$2, he actually lost $700 on the campaign.
* Few sales, big profit each. Peter offers home mortgage
services. His average income per new home mortgage is
$5000. He sent out 30,000 postcards at a cost of $9800. As
a result of that campaign, he closed five additional home
mortgages which is a paltry 0.001% response rate. However,
because his profit on each home mortgage is $5000, he
actually profited $15,200 after his campaign costs.
If you were Jon, you might have considered the campaign a
success because of the high response rate. Knowing what you
know now about the actual dollar value of the campaign,
though, do you think Jon should repeat the mailing?
Commonly, business owners make the mistake of judging a
campaign based on the response rate, instead of the profit
involved. And if Peter were to make that same mistake, he
would miss out on repeating his $15,200 success.
Now that you understand the importance of looking at your
ROI as opposed to focusing on the other campaign numbers,
let's walk through the process of the actual calculation.
Don't worry, it's not nearly as complicated as it might
sound.
1. Get out your numbers. Gather your numbers from your last
postcard campaign. Because this is a new formula for you,
you may not have every number you'll need and may need to
estimate some of them.
2. Fill in the blanks. Using BOOM! Ink's online calculator
or this formula, plug in the numbers from your last
campaign.
* ([Average profit per sale] * [Number of sales from
campaign]) - [Campaign expenses] = [Profit] * ([Average
profit per sale] * [Number of sales from
campaign])/[Campaign expenses] = [ROI %]
Armed with your ROI from your most recent campaigns, you'll
be able to make smart decisions about which campaigns are
worth repeating and which are ready for retirement. Keep
this formula in mind and you'll watch future campaigns
flourish.
Make good use of what you know about ROI to BOOM your
business!
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Ken Daniells helps business owners and organizations to
increase income and profits using practical, but often
overlooked marketing basics. He is the founder of BOOM!
Ink, a marketing company dedicated to helping small
business owners market effectively and grow. For more free
articles, tips and advice, visit http://www.boomink.com
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