Is Your Marketing Financially Viable?
This week’s blog comes from our marketing friend Denise at Sandstonecastles.
Sometimes, the value or success of your marketing campaigns is hard to determine; it depends on your goals, what medium you’re using and which marketing channels you choose.
Also, marketing doesn’t always provide measurable results, at least not in the short-term, especially if you’re looking to raise brand awareness of your company rather than promoting a special offer or event. But that doesn’t mean it’s impossible. The following example shows which key data can help you measure your marketing success.
Analyse Your Marketing Campaign
Let’s say you’ve distributed A5 leaflets to households in a specific area to promote your latest service. With a unique discount code, people get your latest service for a 25% discount (from £100 down to £75).
Step #1: Cost
First of all, work out what the total cost for this campaign was and make sure to count all your expenses including design, print, distribution and set up costs.
Step #2: Reach
Next, check what the reach for your campaign was, e.g. how many households have received your leaflet or how many people have potentially seen your offer.
Step #3: Response
Collect the responses to your special offer with the help of your discount code.
Step #4: Analysis
Finally, take this information and start analysing as follows.
The total cost: £150 (from step 1)
The potential reach: 500 people (from step 2)
The response: 10 people booked an appointment with you (from step 3)
Turnover: £750 (10 people @ £75).
Looks good on the face of it, but let’s explore further.
Result #1: Conversion Rate
To find out how well your marketing campaign worked, it’s good to find out what percentage of possible new customers you’ve actually converted. In this case 10 out of 500, which is a solid conversion rate of 2%. The success or conversion rate varies, depending e.g. on marketing channel and how well the target audience knows you. For example, a direct mail to people who have never done business with you is a success if the response is 0.3% or more. A popular newsletter to your mailing list, however, can sport a click rate of 10% or more. There are no hard rules on what’s good and what isn’t but, obviously, the more, the better.
Result #2: Cost Per Customer
Take your overall spending and divide it by the number of new customers to see what each of them has cost you. In this case, we have a cost per customer of £15 (leaflets £150 divided by 10 customers). The revenue was £75 per customer so it indicates a profit of £60. This is one way to check if you’re covering your costs, especially when comparing the cost per customer with the service revenue or profit margin. However, you also need to look at your overall profit.
Result #3: Return On Investment (ROI)
For this, you need to take your overheads into account and check the real cost of this specific campaign. For the purposes of this example, we’ll say the total cost to run your business is £600 per month. If we look at your diary and it allows you to schedule a total of 30 appointments per mth (after accounting for marketing, admin and accounts), then your average profit margin is £2,400 (30 x £100 = £3,000 less £600). Your profit margin per customer is £80 (£2,400 divided by 30) and your overheads per customer are £20 (£100 revenue less £80 profit).
The revenue from each discounted customer was £75 less your overheads at £20 and leaflets at £15 results in a reduced profit of £40 per customer. This essentially means your discount offer of 25% to your new customer resulted in a reduction of 50% for you (£40 profit compared to £80 profit).
A Few Words About ROI
Whilst you incur a profit reduction (or a loss) you should take into account that around 500 people have been made aware of your business and although not interested in your service right now, they might refer business to you or buy something from you later in the year. Marketing has a long shelf life as it’s often both about making a sale and raising awareness for your business. But the latter is hard to quantify and so it’s up to you to decide what return is worth it or which isn’t.
Sandstonecastles is an Edinburgh-based marketing consultancy, specialising in helping small, local businesses make the best of their size and their marketing.