At our company we do a lot of different types of marketing. We range from trade shows to print to all variations of online stuff, etc., etc. Not matter what you do – you have to go into a “campaign” justifying the expected ROI. One of the items we have been experimenting with over the last couple of years is direct mail. This is an example of one we launched this week that has an expected return of 300%.
1. There is a formula for everything. In this instance, we are just looking for the potential profit of a one-time sale. We can get very complex here, but what you are really trying to do is justify the cost of the initial project and at least make sure you are breaking even.
2. Make room for Error. In this instance we bought a mailing list for a specific SIC (Standard Industrial Classification – something like that) Code for a specific geographical area. Having used lists like these in the past, we know that 10-15% of the companies are going to be “no good” for some reason or another. We look at the worst case scenario, i.e. we count on 15%.
3. Know your Gross. Make sure to know the gross profit of whatever it is you’re selling. When doing this try to account for all the things that go into it when the customer follows through on your offer. In our case we are trying to sell and item (best case), and with that we offer free shipping. We have to account for this cost when calculating our profit per sale.
4. If you don’t know it, fake it. I would love to say we are super smart marketers who know all the conversion rates for all the things that we do, but we typically just shoot from the hip (although our aim is getting better). In this case we are just using and industry standard of 2% conversion on direct mail pieces. Our design is strong, so I believe it could be higher – but it could be as low as .5% and we would still break even on the endeavor.
5. Your cost is the only constant. Where we have to do a lot of guess work in terms of how much we are going to make – you know how much it is going to cost. This is the stick that you measure “whether or not a campaign is worth” against. Trust me and don’t change your assumptions to justify your purchase – you always end up disappointed.
Here my quick formula:
(#M x (1-E%) x C% x PI) – (TC) = Profit
#M = Number of Mailers
E% = Error %
C% = Conversion %
PI = Profit per Item sold
TC = Total Costs
Our Current Mailer:
(9,500 x (1-.15) x .02 x $100) – ($4,100) = $12,050
$12,050/$4,100 = 294%
Marketing is an imperfect science, but you don’t always have to go into it blindly. Always know what you need to do to at least break even. Go to www.ScorpionCoatings.com/Marketing-Programs/ for more information on Scorpion’s marketing programs. If you would like to see a sample of the mailer we sent, feel free to email me at Clayton@ScorpionCoatings.com.