It Begins with a Database, It Ends with ROI
With CFOs cutting costs to ribbons to cope with the recession, marketing budgets are under the axe - but online, with its inbuilt measurability, is attracting bigger chunks of what's left to spend. But do you really know if that campaign was profitable? Sure, it had lots of eyeballs - but did it make money? Today, you need to know.
Marketing, thanks mainly to the Internet and its increasingly sophisticated interactivity, has been made measurable, particularly in the intelligent implementation of email marketing. And since what is measurable can be made accountable too, corporate management now looks to a direct and forensic relationship between marketing and ROI. The key is the generation of accurate data and the ability to analyse it effectively.
This is not to suggest that marketers in the pre-Internet age made no attempt to measure the success of their work: on the contrary, analysis and surveys of all types were and are carried out to assess the impact of both above and below the line advertising campaigns, and the impact they have on sales and brand identity.
Nonetheless, correlating such surveys to bottom line performance remains necessarily speculative. More importantly in an environment of squeezed marketing budgets, it is extremely difficult to cut the cost of offline marketing campaigns by personalising the approach to a known demographic. There is necessarily a strong 'scattershot' element.
Online marketing can generate accurate and detailed data direct from the customer or prospect, tying their behaviour to sales performance. As a result, Finance directors and C-level executives are now questioning the use and performance of marketing dollars as they hit the P&L to the extent that marketers can now be hired and fired based on their ability to drive demonstrable ROI for each and every dollar spent.
In this column, we look at three levels of measurability in email marketing, starting with the basic metrics of messages received and opened, and leading to a more detailed and financially quantifiable model.
The Basic Five-Step Report
The simplest form of email campaign analysis will tell you how many people are looking at what you send them, and in what depth. If nothing else, it will reassure you that email marketing is financially effective in terms of driving brand or product awareness - but unfortunately that's about all it can tell you.
This basic approach shows clear metrics in terms of the success rate of a mailing and, to a certain extent, the penetration of the messages beyond the first level of reception. Simply put it shows how successful you are in driving engagement.
What it does not do, however, is show whether the emails generated any results. As such, it can prove little beyond reception and click rates.
Refining the Results in a world of SPAM filters
In this model, the measurements add in the now common filters for spam and junk.
However, even though more accurate as an indicator of success, when the resulting spreadsheet includes a line for the cost of the campaign, there is still no correlation between money spent and returns generated, although you can extrapolate a cost per click or cost per view:
Aligning the Bangs with their Bucks
All database marketing is measurable. But knowing what to measure is just as important as knowing how to measure. To take your campaign reporting to the next level you should be looking for financial measures of success that directly correlate with those that your finance team use to measure sales performance. So start to think in terms of
- Number of units sold
- Number of paid subscriptions
- Net sales revenue
- Operating profit
Translating the data generated into a genuine marketing P&L, however, requires far more than an overlay of the simple campaign metrics that show how many people are engaging with your campaign and ultimately driving transactions.
The detailed data you now have access to needs to be equated to cost of sales and their resulting profits, in exactly the same way as the company's Sales and Finance Directors are expected to manage their overall budgets.
- Orders: The number of transactions captured in a unit of time, in a specific location, or related to a specific promotion
- Net Sales: The value of a company's sales of goods and services to its customers
- Average Order Value: Net Sales / Total Orders
- Cost of Goods Sold (COGS): The cost to an organisation of supplying goods or services for sales, excluding general overhead (including marketing)
- Gross Profit (= Net Sales - COGS): The difference between the sales revenue of a business and the cost of sales; does not include operating expenses like marketing expense
- Marketing Expense: The direct costs from marketing to generate a sale
- Contribution Revenue from Email Marketing: Gross Profit - Marketing Expense from email marketing
- Return-on-Investment: The profit of an organisation as a ratio of the capital employed
Each company needs to benchmark its email marketing KPIs not only against historical activities, but also against their peers in the same industry. The final ROI can vary greatly by the nature of products promoted over the email channel. For example a single purchase of a big-ticket item (e.g. a car or a life-insurance contract) with a smaller customer database can totally outpace high-volume purchases of a low-ticket product (e.g. newspaper subscriptions) with a much larger database in terms of ROI and response rate. But their cost of goods sold ratio could alter the ultimate ROI completely.
The P&L guideline provided is a living document. It is there to help companies and marketers to locate where along the process they are doing well, and where they aren't, and how each step impacts the bottom lin - positively or negatively.
These are strong reasons why more effort than ever is being invested in driving ROI and performance from direct marketing, demonstrating clearly how money is returned. So rather than cutting cost in email marketing, we see an increasing number of clients are focusing on how to generate more revenue and greater returns from their existing customer base.
If you do not understand how these terms relate to your business, or do not know how to find out the numbers, then ask! Then and only then, can you provide a true profit-driven email marketing P&L.
|
![[ Now to PDF ]](images/btn_down_pdf.gif){kind=small}