Know-How Exchange : Branding

Not sure what you mean by "introduce some percentage of trial by the customers" but ROI is simple.

Look at performance over a set period of time WITHOUT the marketing program and compare to performance WITH the marketing program.

Deciding what is "performance" is the harder part. We like to look at hard sales though some would argue that calls for information are performance. They are, but only converted sales pay the bills.

Example: If you call me because of this posting and we never complete a transaction, there's no measurable value. However I've also recommended to customers that they assign a $$ amount to each RFI based on historic conversion ratios.

Hope this helps.

Michael

Marketing ROI is the return on investment of your dollars spent. Marketing ROI is calculated by dividing the revenue attributable to a marketing activity by the cost of that activity. Here is an example of marketing activities and their ROI.

Media----------------------Cost------Marketing ROI
Direct mail--------------$ 4,000-------100
eMail newsletter------$ 2,500---------50
Ads (two)---------------$10,000--------70
Promotional items-----$ 3,000-------150
Trade show-------------$ 5,000--------20
Brochures---------------$ 4,250--------70
Radio ads---------------$12,500-------10
Billboard-----------------$ 3,500---------7
Internet banners------$ 6,300--------15
TOTAL--------------------$51,050

So, what can you do with this information? Well, if we rank the list by Marketing ROI, we see that the highest return on your marketing investment is from promotional items, and the lowest is from a billboard. Using this information, we can redirect our marketing budget to the higher returning items. Theoretically, if we invest the $3,500 from the billboard into promotional items, we could achieve an $525,000 in revenue versus $24,500 for the billboard, for an added $500,500. Marketing ROI makes the choices clear as to where to spend your marketing dollars.

OK, that’s elementary math, but where do you get the numbers to make the calculations? The cost figures are easy. The hard part is the revenue numbers. Tracking the revenue numbers after the fact is impossible. You have to set up the measuring process from the start.

Tracking Revenue to Marketing Activities
Whether you have a sophisticated CRM system or keep track of leads on an Excel spreadsheet, tracking revenue to marketing activities is possible with a little foresight. The first thing to do is keep track of your marketing activities. This should be easy – everyone has a budget! Just separate your expenditures by activity categories.

The next part is a little trickier. You have to keep track of leads generated by each activity. Some tricks to do this:

1) For each activity, incorporate a unique “landing pad” on your website. For instance, if your website is www.mycompany.com, then on your two ads, have the prospect come to the page www.mycompany.com/ad1 and www.mycompany.com/ad2 for more information. At that point, have them fill in information about their opportunity (name, company, needs, etc). You now have a tracked lead and follow-up information for sales.

2) Another trick is to have a “promotional code” attached to the activity. For instance, if you give away a keychain at a trade show, place a promotional code on the keychain – PC1001 – and then when the customer contacts your company, ask for the promotional code.

Leads are one thing, but what about revenue? Well, if the lead is established in a formal way, then you can track the closure of the leads to sales. That customer’s revenue is then tied to the tracking number for the marketing activity. The set up of the system to track is the hard part; after that, it’s not a significant amount of effort to request the information to track the information once the process is established. As soon as you start tracking, based on the results after a couple months, you can begin making adjustments to your marketing mix.

A note of caution: Make sure you take into account your selling cycle when you begin measuring. If it takes your customer typically keeps eight weeks of inventory in stock of your product, then measuring the effectiveness of your marketing efforts after two months is premature.

With respect to trials, if you are doing this as a marketing activity to generate interest by customers and follow-on sales, treat this as any other activity, assign a unique activity number for use by customers as they order, and track the cost. If you are doing this as a way to get feedback - a market study - then the ROI us a little harder to track and will depend on your follow-up activities: product/service redefinition, changes to media/message, etc. You would have to add together all of the revenue from the follow-on activities and the costs with the costs of customer trial to get the ROI.

For this last example, I'd ask, what's the point? Because of the difficulty in tracking revenues to marketing activities, you need to decide the purpose of the information: activity selection, activity justification, improved marketing investment efficiency, etc. Then, you need to prioritize and select the small set of key activities you are really interested in understanding. For instance, you may select the activities which make up 80% of your budget. Chances are these will be about one fifth of your activities in numbers. Design how you are going to track revenue to them and measure consistently.

I hope this helps.

Getting a good fix on the Marketing ROI is often more costly than its value. It's unfortunate, but it's true. Of course, it depends on the industry, the markets, and the specific situation.

If you have a promoted market and an unpromoted market, and you have a good history of sales over time in both markets, then it may be possible to calculate baseline sales and measure the increment in the promoted markets compared to the unpromoted markets.

Getting any more finite than that is usually very difficult and costly. So ask yourself what you're going to do with the answer when you get it, and what that's worth to you, before you embark on the measurement task.

The concept of ROI is important, but the tools for good measurement are not there. It's like trying to measure the thickness of a sheet of paper using a yardstick. The only good way to do it is to get 500 sheets of paper and measure the thickness of the ream, then divide by 500.

Same with marketing. You probably can't measure the ROI on any one marketing event in isolation. But if you measure the effect of all the marketing events over a long period of time, then there's a chance that you can begin to approximate an ROI.

Good luck. This isn't easy, and it will be very time consuming (and perhaps expensive). Be sure it's really important.