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Saturday, June 27, 2009

How Do You Define "Success" In Direct Marketing

Success in Direct Marketing is very easy to define and caculate. However, many unsophisticated 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 Paks and other local co-op mailers
  • Saturation solo mailings

Failing to test concepts before committing significant advertising dollars ignores direct marketing's major advantage. We can take a small sample and test the concept before committing greater financial resources. Assuming the initial test was successful, we can replicate the same test parameters and have a high confidence of success.

In many cases companies will commit xx Dollars and it is "make or break". If it "does not work" then direct marketing does not work never to be tried again. Companies should test different concepts before making a significant financial investment. There should be a coherent marketing budget with an actual line item for testing. This line item represents marketing dollars devoted to testing, some of which may or may not work.

A response rate is not the single measure of success. Response rate are 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 profitable marketing program is one that has a positive return on investment (ROI). This metric ranks the "success" of any marketing program regardless of media deployed because it calculates the promotional cost and COG to determine profitability. ROI normalizes analysis by providing a metric useful for any marketing campaign.

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 you use 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%).If you target incorrectly, you can have the best offer in the world and it will not make any difference.

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.

If you are contemplating a direct response campaign or would like additional information, visit www.ebmdirectmarketing.com and complete the registration form selecting the solutions of interest.
EBM Direct Marketing Services LLC © 2009

2 comments:

William Freedman said...

Eric,

Great insights -- thanks for posting.

I do have one question: What formula do you use for ROI? I find that this term is used by different people to mean different things, and so is often misunderstood. How do you define the term?

EBM Direct Marketing Services LLC said...

This is easy. It is a simple calculation combining gross sale, cost of goods and media cost. It is as follows:
(Gross Sales-Cost of Goods COG) - Marketing Cost))/Marketing Costs