Marketing Model: Planning for Successful Marketing Campaign ROI
27 August 2010
How do you evaluate plans for a new marketing campaign? Here are a few ideas and some suggestions on campaign modeling.
Ways to estimate the success of a marketing campaign:
- Compare your plan to a successful case study
- Check that you follow best practices from a reputable source
- Test your campaign on a small group from the target
- Discuss with someone who has done it before
- Use a marketing calculator or campaign estimator
- Make a funnel model and honestly rationalize each step
In this post, we discuss two models that we have used to plan for a successful ROI on marketing campaigns or programs. The Funnel Model helps you calculate the response you will get. The Campaign Calculator helps you figure out the ROI of marketing plans and activities.
Using a Funnel Model to Estimate Response
When trying to estimate the potential response for a campaign or marketing program, it is helpful to create a funnel model that shows each conversion step. The word "conversion" refers to positive responses by the target audience when given the chance to self qualify.
Example - If you are presenting at an association luncheon, the first conversion step is a person's choice to attend once they see you are the featured speaker. Subsequent conversion steps might include: filling out a response card, requesting a free trial, or being available for a sales presentation. The more you know your Marketing and Sales Process, the easier it is estimate the number of responses.
Funnel Diagram - Start by tracking audience sizes and conversion rates. By the time you have closed your first group of sales, you should have enough data to create a mathematical model of the funnel. In the diagram below (relating to a corporate SEO program designed to sell a $10,000 product), you can see that it takes about 30,000 organic visits to the website to produce a single sale.
Knowing that you need 30,000 visits to make a sale is critical information that can help you make plans, set goals, and manage expectations.
Calculating ROI for a Marketing Campaign
A simple way to calculate Marketing ROI is to subtract overhead costs and your marketing investment from the currency amount of your sales from the campaign. Then divide the whole thing by marketing investment cost.
Example - From $30,000 in Sales we subtract $10,000 in overhead product and overhead costs; we also subtract $5,000 which was the cost of our marketing campaign. The net gain is $15,000 which we divide by the campaign cost of $5,000 to get 3.00 or an Marketing ROI of 300% for the campaign.
Another Example: Sales of $20,000 minus overhead of $10,000 and marketing costs of $8,000 puts us at $2,000. Divide $2,000 by the $8,000 cost of your program and you get a Marketing ROI of 25%. In other words, for every dollar you spend, you get back only 25 cents. Note that any ROI that is less than 100% is actually a loss for your business.
Combining Funnel and ROI into a Successful Marketing Model
The two activities above, Marketing Funnel and Marketing ROI, can be combined to create a model on the potential outcomes for any marketing campaign. The complete model may take months to develop and you collect data, calculate costs, and test your model in the real world.
Example - Suppose you have a product that sells for $100 and you have planned to do an email marketing campaign that will cost $5000. When presenting your idea to the boss, you confidently state that you can double the investment money for this campaign. Now that you have said it, we will work the numbers backwards so they are easy to follow.
With a 50% margin ($50 product cost), you would need to sell 200 units just to break even and 250 units to make a 200% ROI on the campaign investment.
The Funnel Analysis will help us figure out if this is realistic. Suppose that your email leads are closing at 10%. To make 250 sales, you will need 2,500 leads. Now suppose that your email campaigns have a 1% conversion rate, which means that for every 100 messages sent you get 1 qualified lead. To gather 2,500 leads, you would need to send messages to 250,000 people.
Question yourself - Do you have 250,000 email addresses? Can you carry out the campaign for only $5,000. Have you tested the response rate? Make sure your model is sensible and feasible before you start.
Creating a reliable marketing model requires discipline, patience, and extra effort during the marketing process. Once you have a tested model, you can use it for planning, budgeting, getting executive support, and estimating campaign performance.