The corporate language of a VP of Marketing
Direct marketing may be the bean counter’s ultimate dream simply because, unlike virtually every other marketing media, direct marketing is 100% accountable.
Metrics like response rates, click through rates, conversion and closing rates are the numbers that sales & marketing management will focus on. But the numbers surrounding revenue and income are the metrics your CFO requires.
Every campaign you build MUST be able to track these key variables:
This is the grand total of revenue that your marketing campaign is responsible for bringing in. Understand that there are two models in presenting Gross Revenue:
- Initial Transaction Value. Always good to present your Gross Revenue using the Initial Transaction Value model to showcase hard and undisputable revenue data that your campaign brought in.
- Lifetime Customer Value. You will never fully understand the full revenue impact of your campaign unless you factor in Lifetime Customer Value. Customers are likely going to buy multiple times in the future and your marketing campaign forged the relationship, so it should get credit for this recurring revenue stream. Recommend making conservative projections to present Gross Revenue using the Lifetime Customer Value model, basing your numbers on how much a typical customer is likely to spend in the next 2-3 years. If you have a full-featured CRM tool in place, you can present the Lifetime Customer Value accurately and real-time to the penny.
After factoring out all of the hard costs of each sale, what is left at the bottom line? Be sure to remove the following costs to arrive at your Net Revenue:
- Cost of Goods Sold
- The value of your offer (i.e. free promotional item)
- Any associated labor with the product/service you are delivering
Precisely how much the marketing campaign costs you.
Return on Investment.
It’s all about ROI. Your ROI is simply Net Revenue minus Marketing Investment.
Gross Revenue for every $1 spent.
This is an excellent benchmark to compare the return you get at the cash register (revenue) vs. what you spend. Simply divide Gross Revenue by Marketing Investment. A $4 to $1 ratio is generally considered good.
Net Revenue for every $1 spent.
Another excellent benchmark as this precisely presents the numbers where the rubber hits the road. Simply divide Net Revenue by Marketing Investment. You will earn extra points when you present:
- Net Revenue for every $1 spent for each segment of your database
- Net Revenue for every $1 spent for each offer you present
- Net Revenue for every $1 spent for each direct marketing vehicle you use
The “Sweet Spots” where the right combinations of data, offer and marketing vehicle give you the greatest Net Revenue for every $1 spent.
Marketing Cost per Lead (or Cost per Inquiry).
This is a fantastic metric to track when comparing direct marketing vs. other forms of lead generation. No doubt your CFO wants to know which marketing media performs best. When comparing print ads in trade magazines vs. trade shows vs. direct marketing vs. any of the thousands of other ways to spend your precious marketing budget, the Marketing Cost per Inquiry allows you to funnel everything down to a true apples-to-apples basis.
Marketing Cost per Sale.
While Marketing Cost per Inquiry is a great metric, it can be skewed depending on the quality of the inquiries that you receive. Did they just respond to get your free give-a-way item? Are they unqualified with no budget, decision making authority, timeframe, need? The Cost per Sale is the superior metric when comparing all of the various forms of marketing. Often CFO’s will compute the true overall Cost per Sale by adding together the costs of marketing and sales (salaries, commissions, expenses, etc.)
If it’s not measurable, then don’t do it.