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Return On Marketing Investment | ROI and ROMI

At this 3rd stage of business tracking, we account for Customer Performance Management. What is the return on marketing investment, at various levels of customer lifestime. From customer acquisition, through to retention.

Soft measurements

  • Feedback from customers, partners, and resellers
  • Questionnaires/Polls
    • What did you like about our product that influences your decision to buy?
    • Rate your experience with us on a scale of 1 to 5?
  • Intuitive insight into campaign response
  • Buzz monitoring services such as http://sysomos.com

Hard measurements

Front-End Acquisitions

Tracking acquisitions includes numbers such as:

  • Number of visitors to your web site
  • Number of visitors choosing to register at your web site
  • Number of leads generated
  • New customers acquired

Return On Acquisition = Front-end revenue – acquisition costs / acquisition costs

Back-End Retention

Between marketing for acquisition or marketing for retention, the marketing budget priority should be on retention. – Retention is King.

This gives your marketing strategy a holistic approach, focusing on the most profitable areas of the market, through demonstrable ROI, which can then guide the acquisition.

  • Current list size?
  • Leads
  • Response rate
  • Cost per lead
  • How many orders
  • Conversion rate
  • Current CPA
  • Average order size

From the relevant metrics of your specific campaigns you can determine both Total revenue and Current marketing costs to then calculate your current Return On Investment.

Marketing Costs

  • Cost per dollar earned
  • Cost per acquisition sale
  • Cost per retention sale

Real-Life Return On Marketing Investment Example

My Financial Services client had a customer list of 30,000 names for a back-end (selling to existing customers) promotion.

This particular promotion was loans for homeowners. The average size loan was ?10,000.

Up to that point they had been sending a similar email with no personalisation or compelling appeal that a good direct response copywriter revels in. So I saw an opportunity for a big increase in ROI on this campaign.

Here’s how it turned out…

ROMI Calculations Input

  • list 30k
  • average order 10k
  • expected response 0.05% = 15
  • expected conversion of that 3% = 0 new customers
  • Marketing costs = ?2,000

They got a customer once every several months from that particular promotion. Remember, these are people that had taken a substantial loan in the past few years already.

For our test with my long copy against the agencies creative we split the list.

15k names at 0.05% is 8 projected leads from their creative.

How much better could I do?

ROMI Calculations Results

Here we want to keep track of things like:

  • Number responders
  • Number buyers
  • Total revenue
  • Cost per response
  • Cost per buyer
  • Cost per piece
  • ROMI

15k names on my long copy produced a response of 61 leads, which was a 0.4% response off the list. The existing creative had a response of 10 leads (near enough their projected 8.

This meant a 510% increase in response (My 61 against there 10).

(61-10) / 10 = 5.1 = 510%

That was huge for the client, who then wanted me to train their copywriters in some direct response copywriting principles (opens new window).

And because of the personal nature, and genuine human appeal of my copy the client had 2 buyers, at approximately 10k each (a ?20,000 return).

Marketing costs = ?1,000 (half of the full cost of ?2,000 given that we did a split test)

Return = ?20,000

A huge ROMI of 1900%.

But this was still only the beginning as I saw it…

  • I began work with the client on their loan information pack to increase actual conversion rates after the new lead generation.
  • I also began to plan a follow-up series to the list of 15k that had received my email
  • Plus another campaign to the 59 leads who responded to the first email but hadn’t yet converted.
  • And the email would also (ofcourse!) be sent to the other half of the list that hadn’t yet received it.

Through integrated marketing, opportunities to increase ROI are endless.

You can read the copy I wrote on the Email Marketing page (link opens new window).

Retention Metrics

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  • Current purchase cycle – purchase frequency
  • Current life cycle
  • Retention rate – number of customers continuing to make purchases on a periodic basis (e.g. yearly)
  • Cost of acquisition
  • Cost of retention

Current LTV. For lifetime value calculations see the Retention Marketing page.

From there, money can be allocated for new customer acquisitions, based on the cost : profit relationship.

The focus of direct marketing is to improve RFM: Recency, Frequency, and Monetary value of sales, which reveals 4 revenue streams:

  1. More Customers
  2. More money per order – which can be
    2a. Higher cost per unit or
    2b. More of the same unit (increased consumption) or
    2c. Different units (cross-sell / upsell)
  3. More purchases – achieved through
    3a. Increase in purchase frequency and
    3b. Extension of purchase lifecycle)

Lifetime Value (LTV) of a customer is simply the not profit over a customers lifetime. I.e. Total revenue earned through customers purchase frequency and amounts, minus cost of acquisition and cost of retention.[/private_free] [widget id="text-402250962"]Text: Register Free[/widget]

[widget id="ad-continue-marketing"]Ad: continue-marketing[/widget]How close are you to knowing, controlling, and increasing your average customer LTV? Contact me for partnership or consultancy opportunities.

Stay tuned to the most important updates on generating demand in the experience economy as it is published.