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Why is it so common to find a lack of ROI focus in marketing departments? Marketing change management helps the company's leaders refocus their marketing organization, tools and processes which can have a dramatic positive improvement on ROI.
Often, marketing departments are viewed as sales support centers operating at the rear of the train. Successful companies in all industries, however, view marketing as an opportunity seeker and driver, operating more like the train's engine.
Marketing departments ignore ROI when they're not held accountable. Did you know that ROI can be calculated on email blasts, promotions, price changes, print ads and tradeshows? With or without campaign management software, calculating ROI is an easy and often overlooked best practice that reaps benefits in bottom line performance, improved overall marketing skill sets and marketing team morale.
The following is an example of how ROI is calculated and used in an online marketing campaign. Companies should always strive for better than 300% ROI, knowing that ROIs in the thousands of percents are not uncommon.
Introduction
Column 1 in the first model is an actual e-marketing example modeled with a client. The two scenarios hold all variables constant except for revenue generated by campaign.
Revenue generated is a direct function of market reach and penetration, which, in turn, is driven by the accuracy of market segmentation and the timing and attractiveness of the offer. Simply stated, ROI is directly dependent on the marketing homework that goes into the campaign.
| Total Costs per Campaign |
$100 |
$200 |
$500 |
$1,000 |
$2,000 |
$3,000 |
| Total Responses |
1,354 |
1,354 |
1,354 |
1,354 |
1,354 |
1,354 |
| Cost Per Response |
$0.07 |
$0.15 |
$0.37 |
$0.74 |
$1.48 |
$2.22 |
| Total Revenue Per Campaign |
$250 |
$250 |
$250 |
$250 |
$250 |
$250 |
| Revenue Per Response |
$0.18 |
$0.18 |
$0.18 |
$0.18 |
$0.18 |
$0.18 |
| ROI = Total Revenue - Total Costs |
$150.00 |
$50.00 |
$(250.00) |
$(750.00) |
$(1,750.00) |
$(2,750.00) |
| Percentage ROI |
150% |
25% |
-50% |
-75% |
-88% |
-92% |
| Conversion Ratio |
1% |
1% |
1% |
1% |
1% |
1% |
|
| Total Costs per Campaign |
$100 |
$200 |
$500 |
$1,000 |
$2,000 |
$3,000 |
| Total Responses |
1,354 |
1,354 |
1,354 |
1,354 |
1,354 |
1,354 |
| Cost Per Response |
$0.07 |
$0.15 |
$0.37 |
$0.74 |
$1.48 |
$2.22 |
| Total Revenue Per Campaign |
$1,500 |
$1,500 |
$1,500 |
$1,500 |
$1,500 |
$1,500 |
| Revenue Per Response |
$1.11 |
$1.11 |
$1.11 |
$1.11 |
$1.11 |
$1.11 |
| ROI = Total Revenue - Total Costs |
$1,400.00 |
$1,300.00 |
$1,000.00 |
$500.00 |
$(500.00) |
$(1,500.00) |
| Percentage ROI |
1400% |
650% |
200% |
50% |
-25% |
-50% |
| Conversion Ratio |
6% |
6% |
6% |
6% |
6% |
6% |
Key:
Total Costs
Includes most costs of offering the campaign. These costs include advertising, promotion, co-marketing costs, plus any variable cost that is associated with putting the campaign in front of an audience such as email blast services (Blue Hornet is an example.). This does not include the cost of fulfillment, giveaways such as all expense paid trips, freebies such as keychains & mousepads, free dinners, etc. (see Total Revenue Per Campaign). The example shown was an email blast sent to about 40,000 customers, which cost about $100 with the client's email blast vendor.
Total Revenue Per Campaign
Total revenue per campaign is total revenue generated by the campaign (commissions, fees, product sales, etc.) minus the total cost of trip giveaways, freebies such as key chains & mousepads, free dinners, etc., used to generate the response.
Total Responses
The number of click-throughs, postcards, sweepstakes entries, phone calls, etc., generated by the campaign.
Cost Per Response
Total costs divided by total responses.
Revenue Per Response
Total Revenue Per Campaign divided by Total Responses
ROI
Total Revenue minus Total Costs
ROI Percentage
ROI minus total costs of campaign, divided by total costs of campaign
Conversion Ratio
Total revenue divided by average sale ($20 in this case), divided by total responses.
The net of this example shows that the client must think bigger, concentrating on market penetration and conversion rate. The actual example shown, based on campaign tracking reports on 10 campaigns per month, has a dismal 1% conversion rate and a total gross ROI of $18,000 annually, showing that the offer was simply not very good or that customers had a hard time making the purchase, or both. Simply moving the conversion rate to 6% from 2%, by improving the offer and/or its timing or making it easier for the customer to complete a purchase, and holding all other variables constant, the gross ROI becomes $168,000 per year.
Conversion Rate Is Affected By:
1. The ease with which respondents can complete a purchase, whether online, through telesales, field reps, or other means.
2. The attractiveness of the offer. Value is always measured in terms of time and/or money saved in the tech world. Consumer value is, basically, whatever feels good to the consumer and is discovered through softer methods such as trial and error, qualitative market research, talks with customers, employee polls and other means.
3. The stimulus of the presentation. Attractiveness and immediacy are the key considerations in consumer markets. Technology markets, on the other hand, are stimulated primarily by explanation and ROI.
Remember, models such as this are only models and are not always black and white. They are meant to help marketing people focus on what they are spending and what the company receives for that investment. They are also excellent tools for communicating results to senior management and others in the organization.
MH
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