by Ken Daniells
http://www.boomink.com
©
2008
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.
- 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.
- 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!
