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Are you achieving ROI?
Stuart Nicolle, MD, Purple Seven Ltd
Since we launched our mailings module in Vital Statistics 4 years ago we’ve been quietly watching as our customers refine their mailings to get some really fantastic results. They are achieving this because they understand ROI.
When we talk to potential customers, we often find they don’t know if a mailing was a success or not; they do the marketing and meet the ever increasing show targets; therefore their marketing “must be working”. This approach startled me. A bit of research later and we found that there are a worrying number of campaigns that are not covering cost. I thought about this more and considered the implications – under these circumstances the marketer would have been better off taking their marketing budget out of the hole in the wall and handing over the cash directly to the box office as it would actually have improved the sales for the show rather than undertake loss making campaigns.
ROI means Return on Investment and like any investment, it implies risk – you might not get out what you put in. But I think that if these marketers knew their activity was loss making they would change something and fast.
So, how do you measure if a campaign was successful or not? It’s not an exact science measuring how much revenue was generated as a direct result of your campaign, especially when you consider we’re dealing with people here – someone might receive your mailing, show it to their friend who then goes on to buy a ticket. That sale is invisible to us when measuring the return from our campaign.
All but the most basic ticketing systems are able to tell you if someone bought a ticket as a result of being sent a campaign which means that you can quickly figure out in total how much money was generated from the campaign. Some people stop here and will quote how much money their campaign generated as a measure of success. The more money generated the more successful it was. But they didn’t get those sales without investing money upfront. So their return is only the amount of ticket sales generated after the cost of the mailing has been deducted, known as the mailing profit. Mailing profit only shows half the story however.
For example you could spend £10,000 on a campaign and get £15,000 return giving you a clear £5,000 profit. But if you could get the same amount of mailing profit for only spending £5,000 you are actually £5,000 better off because you didn’t have to spend that money in the first place. Also, if we measure all campaigns based on the profit they generate it loses the focus on what we are trying to achieve, which is ticket sales.
In the above example where I spent £10,000 and got £5,000 profit the box office was £15,000 better off compared with spending £5,000 and £5,000 profit, the box office only sees £10,000. In order to get the same box office revenue I would have to spend £5,000 and get £10,000 mailing profit.
So we need a different measure to figure out how effective our campaigns are. One that recognises the profit of the mailing AND how much revenue is generated at the box office.
Imagine that you are a marketing manager at a receiving theatre. The promoter for the show you are marketing arrives for the marketing planning meeting and instead of preparing for battle to see if you can get the same budget as they gave you last time you are able to say “listen here Chuck, for every £1 you give me to promote this show I will get you £20 in ticket sales and here’s the proof”, the promoter would be mad not to say “how much money do you want?”
That is exactly what ROI (or Return on Investment) is. It is simply how much money you can generate for every £1 you spend. And it’s really easy to calculate – you don’t even need to open Excel. Simply divide the amount of revenue you generated from your mailing and divide it by the amount you spent. Easy.
In our example above – if I generate £15,000 of revenue by spending £10,000 my ROI is £1.50 but if I generated £10,000 by spending £5,000 my ROI is £2. In this example if I had spent £10,000 and got an ROI of £2 I would have generated £20,000 at the box office.
So what is the average ROI? It depends on what you’re promoting, who you are promoting to, how you are promoting it and the quality of the promotion. For example email yields a higher ROI than print but often there isn’t the volume of emails to send out to get the return you need. We see ROI from £0.80 through to £100.
ROI can be influenced by so many different variables, some of which maybe out of your control. The price of the ticket is the obvious one – if you send out 1,000 emails that cost you £5 and you get 20 people buying a £10 ticket each – you’ve just cleared £200 gaining you an ROI of £40. If the price of the ticket was £13 your ROI just increased to £52.
Then there’s the size of your list – your ROI will increase if you get the same revenue by spending less. Similarly your ROI will increase if you keep your campaign cost the same but get more people to buy tickets. And you’ll be quids in if you can reduce your spend and get more people to buy tickets at a higher price!
So there you have it – the 3 key variables that control your ROI:
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As a database marketer you are in direct control of the cost of the campaign and largely in control of the quantity of tickets sold. In our “how to double your ROI” season we’ll be focusing on practical tips and techniques you can immediately implement which will reduce the cost of the campaign increasing the quantity of tickets sold. We won’t be covering pricing of tickets as that is an art form in itself and if you really want to get that right you should employ an expert such as the Baker Richards consultancy firm who can ensure your ROI goes through the roof by getting it right.
Next month I’ll take you through some simple methodologies that you can apply straight away to double your ROI.