Pivotal CRM - Marketing and ROI

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Traditionally, marketers have been "ideas" people, experimenting with creative ways to generate leads and create awareness. For some time, it was accepted that the benefit of marketing would be soft and qualitative in nature. Until today, ROI-based reporting and ROI Drivers for Aquisition Campaigns had long been an inexact science. But the transformation in marketing is well underway—so that this critical, revenue-connected function is now considered more of a numbers game than a creative or qualitative game.

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Pivotal CRM - Marketing and ROI

  1. 1. A r t i c l eMarketing and the ROI Goldminechange is sweeping through marketing organizations everywhere. expectations arerising—give us more, better quality leads, more quickly. the mandate of doing morewith less has never been more apparent, and pressure is increasing for marketingteams to draw a direct line between their activities and the bottom line.Traditionally, marketers have been "ideas" people, experimenting with creative ways to generate leadsand create awareness. For some time, it was accepted that the benefit of marketing would be softand qualitative in nature: We know half of our marketing activities are useful—we just don’t knowwhich half. We know marketing is necessary, we just don’t know how good we are at it. Until today,ROI-based reporting had long been an inexact science. But the transformation in marketing is wellunderway—so that this critical, revenue-connected function is now considered more of a numbersgame than a creative or qualitative game.With insight into each customer’s lifecycle, preferences, and profitability, you can precisely trackwhich campaigns work, which ones don’t, and why. This lets you focus resources on proven tacticsso that a greater number of prospects sign up to learn more about you, and your team gets smarterabout how they use resources.Defining rOi in the Marketing FrameworkInvestopedia.com defines return on investment (ROI) as profit or loss resulting from an investmenttransaction, usually expressed as an annual percentage return. Formal ROI calculations include thefollowing elements:• initial investment: Total cost of the investment being analyzed• Ongoing expense: Cost to operate and maintain the investment• Benefit: Tangible cash benefit resulting from the investment decision, the combination of increased revenues and decreased costs• Discount rate: The factor representing the time value of money.While calculating ROI can be a complicated process, in general terms, positive ROI is generated byincreases in revenues and/or decreases in costs. In fact, marketers usually invoke the term withoutincluding its complicated calculations. In this regard,to the extent that marketing programs delivertangible benefits that can be assigned monetary values, they are said to generate ROI.Where Marketing Delivers ValueMarketers use marketing automation software applications to acquire and retain customers moreeffectively. Marketing acquisition and retention campaigns are designed to deliver responsesfrom their target audiences and to set as many suitable respondents as possible on a long-termpath to a mutually beneficial relationship. Clearly, a great deal of value and potential profit restson the effectiveness of every communication, special offer, or invitation that leaves the marketingdepartment. Since positive ROI is driven by increases in revenues and decreases in costs, ifmeasurable revenue generation or cost savings can be associated with a response, ROI canbe demonstrated.The business of marketing is demand generation. Results such as increased lead generation orsales to new and existing customers are key metrics describing demand generation. Translatingthese metrics into a revenue stream provides the top-line component of ROI. CDC MarketFirst | Article
  2. 2. Marketing and the rOi GoldmineSince the majority of marketing communications today rOi Drivers for retention campaignsare in digital format, the cost savings from substitutingbits for atoms are tangible. Savings from replacement of Marketing managers know that sales to existinghuman or paper-based interactions can be calculated customers generate higher margins than sales to newand used to validate marketing ROI. Thus, a framework customers because they don’t carry the burden ofto calculate ROI for a marketing campaign or program acquisition costs. If fact, most companies find that theis to determine: major portion of their profits is driven by sales to existing customers. To the extent that the marketing department• Cost savings at the same level of demand generation can deliver increased sales to existing customers, it will for a given program be justifying its investment.• New revenue generated via net new demand The basic objective of retention campaigns is toBecause of the closed-loop capabilities of marketing increase the lifetime value (LTV) of existing customers.automation applications, responses to marketing Calculation of the lifetime value of a customer isprograms can be measured and ROI calculations a difficult process and few companies have LTVcan be built into each program and campaign report. calculations that they use withThus, certain responses can be used as drivers in a great deal of confidence. However, the basic elementsROI calculations. of LTV are the amount a customer spends and the period of time that the customer is actively purchasing.rOi Drivers for Aquisition campaigns Increases to either spending or longevity by marketingNew customer acquisition will always be a major are significant contributions. Some of the key ROIcomponent of a marketing department’s objectives. drivers for customer retention campaigns are:Some of the key ROI drivers for customer acquisition • increased Sales per customer: New revenuecampaigns are: generated from increased transaction levels• lead Generation: New revenue calculated from • Higher Margins per Sale: New revenue calculated the expected revenue per qualified-lead-producing from cross-sales of higher margin products through response, based on known sales conversion rates better targeting of offers and average order size statistics • increased House e-mail Files: Cost savings from• Sales conversion: New revenue calculated from the migrating relationship programs to the Internet; revenues from order-generating responses based on e.g., by acquiring e-mail addresses and receiving actual sales permission to send e-mail• reduced Sales contacts: Cost savings calculated • loyalty/rewards Program redemptions: from the number of contacts during the sales cycle New revenue generated to qualify for awards that an automated lead generation and qualification campaign that replaces contacts generated by the • Win Back campaign responses: New sales force, reducing the cost per sale evenue generated from responses to Win Back campaign offers• reduced Fulfillment costs: Calculates cost savings as the reduced cost of automated digital fulfillment of Developing Marketing rOi reports program-specific offers and marketing collateral In order to develop a ROI report for a marketing• reduced Direct Mail costs: Cost savings including campaign, it is necessary to measure the economic printing, postage and handling, materials and any value of campaign responses. The ROI drivers difference in list costs described above should be selected, as appropriate,• reduced call center costs: Cost savings calculated as variables for resulting calculations. Taking a lead- from telephone and customer service rep costs for generation oriented program as a typical example, response registration and offer fulfillment additional statistical information may be required, if it• reduced Sales cycles: The time value of money is not available directly from the company’s sales and and competitive advantage generated from faster financial databases: deployment of sales campaigns • Sales conversion rates: How many leads scored as A that enter the sales funnel result in a sale • Sales cycle Data: Length of time an A lead spends in the sales funnel and the number of sales contacts needed to convert CDC MarketFirst | Article
  3. 3. Marketing and the rOi Goldmine• Average Order Size: Average order for the product In cases where the ROI is being calculated based on or service that is the focus of the campaign cost savings, the following chart of standard costs-per-• customer Acquisition cost: The current budgeted contact can be used if no other cost data is available. cost of acquiring a new customerSoftware company New Product launch eMarketing campaign rOi report Outbound e-mail total Percent comments Attempted 8,000 00% Failed 00 0.6% Bounced 50 0.89% Indicates a good list Completed 7,650 98.75% Unsubscribed 00 0.6% Low opt-out rate e-mail responses total Percent comments Download (Link ) ,50 9.% Download + Info (Link ) ,650 .84% Buy (Link ) 750 .7% Total Responses 6,80 4.67% 5% overall response Web Forms Submitted total Percent comments Download 4,40 68.7% Buy 560 74.67% Some problems with form completion Projected revenues total equation comments Sales to date $,800,000.00 (560 x $5,000) Trials to date $0,600,000.00 (4,40 x 50% x $500) Total to date $,400,000.00 ROI result, new revenuesFor reference: Sample costs-per-contact Used to calculate rOicontact cost per contactSeminar ......................... $ 50 Telemarketing ................ $ –$5Sales Contact ................ $ 0 Value Newsletter ........... $ 4Trade Show ................... $ 00 Direct Mail ...................... $ –$Telesales ....................... $ 5–$ 40 Products Catalog .......... $ 0.60Personal Recognition .... $ 5 Print Advertising ............ $ 0.0Business Letter ............. $ 0 Broadcast ...................... $ 0.0Overnight Delivery ......... $ 5 Fax ................................. $ 0.05Closing Literature .......... $ 5 Email ............................. $ 0.0–$0.05Business Catalog .......... $ 7 WWW .............................. ? CDC MarketFirst | Article
  4. 4. Marketing and the rOi Goldminecalculating and reporting Once a campaign or program has run its course and the results are in, it is a best-practices imperative thatMarketing rOi those results are assessed to find out what worked wellThe following is an example that can be used as a and what needs improvement. Remember, marketing isguide for developing ROI reports that monetize the not one e-mail or program. It is part of a strategy to findvalue of a marketing-campaign response. This example and retain the best customers over a long time period.identifies responses that directly contribute to sales Lessons learned from each campaign can be appliedtransactions and assigns appropriate values to them. to make the next one even better. This is where classicThe scenario, based on actual Pivotal MarketFirst analysis of results, patterns, correlations, clusters, andcustomer results, is as follows. trends generates real pay-offs.A software company develops a new product,complementary to its existing suite. The company conclusiondecides to initiate a campaign to launch the new Marketing automation, especially when integrated withproduct to current customers. the sales force automation component of a complete CRM suite, provides a wide variety of ways to lowerThe campaign consists of an e-mail announcement with costs, increase sales, and improve the accountability ofoffers for a download and 60-day free trial, or to buy marketing campaigns. As the ROI imperative increasesthe product. The e-mail contains two hyperlinks (one for the focus on quantifiable results and continuousjust the download and the other for more information improvement in the marketing field, these techniquesand the download) for the trial, which is the primary will be essential to the professional marketer.objective of the campaign. There is also a link to buythe product, of course. All call-to-action hyperlinks arefulfilled through a web response form and then from thecompany’s FTP (download) site. For CDC MarketFirst Customers ProspectsSample rOi report Consultants in our Professional Services group haveThe company wants a report that projects the revenues a complete ROI toolkit to help you enhance thegenerated from the campaign. The ROI report effectiveness and measurability of your marketingaccesses the server log files for relevant response data. campaigns including:Supplementary information supplied by the marketingdepartment for the report: • Pre-Launch Strategy Development: Review the process flow and all program content. MakeSelling price of the new software: $5,000 sure that proven best practices for metrics, reporting, campaign effectiveness, and testingTypical sales conversion rate for trial downloads: 50% are incorporated in all aspects of your campaigns and programs.improving rOi: test cells, control • Post-Launch Assessment Review: Assess whatGroups, Analysis worked best so that results will be improved inMarketers can take advantage of the quick responses ensuing campaigns.and closed-loop capabilities of marketing automation • Integrated Marketing Campaign Services:applications to improve the results on their acquisition Let our consultants provide our deep industryand retention programs by prelaunch testing and post- expertise and marketing experience, working withlaunch assessment and review. you throughout campaign planning and execution.Almost all aspects of a campaign can be tested usingwell-proven test cell and control group methods. Lists,offers, content, and process flows can all be testedprior to the main launch, or placed continuously in aparallel testing mode. Best results can be identified andthe program optimized accordingly to improve results.Improved results mean improved ROI.For more information, please visit www.marketfirst.com or call +1 877-748-6825.Copyright © CDC Software 007. All rights reserved.The CDC Software logo and CDC MarketFirst logo are registered trademarks and/or trademarks of CDC Software.

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