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# Marketing Math: Key Metrics to Maximize Marketing Dollars

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All of the marketing math equations you've probably heard about -- but never really understood, including:

- MARKETING PROGRAM ANALYSIS metrics: Marketing Contribution, Return on Investment (ROI), Social Media Engagement, Conversion Rates, Revenue Per Email, Revenue to Expense Ratios

- MARKETING PLANNING metrics: Budgeting formulas, Breakeven Analysis, Cost Per Acquisition (CPA)

- The difference between Gross Revenue and Net Revenue
- How to compute Gross Profit or ROI
- Whether you're creating the most effective marketing budget
- Whether you're analyzing your marketing programs effectively

This presentation will help, and is a great resource for every marketer!

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### Marketing Math: Key Metrics to Maximize Marketing Dollars

1. 1. Marketing MATH: Formulas to Maximize Your Marketing Dollars Bit.ly/mktgmath1
2. 2. What’s that Formula? These slides include All of the marketing math formulas You’ve probably heard about But never understood . . . 2© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
3. 3. Marketing Math Formulas for:• Marketing • Social Media Contribution • Engagement• ROI • Conversion Rate• Expense to Revenue • Revenue Per Email• Budgeting Formulas • CTR• Breakeven Analysis• CPA Benchmarks• Lifetime Value3
4. 4. Marketing Contribution \$ Sales Shipping and Handling Fees Gross Revenue Returns and Bad Debt Net Revenue Cost of Goods Sold (COGS), shipping, 800#, credit card costs Gross Profit Marketing Costs Marketing Contribution (to profit and overhead) 4© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
5. 5. ROI: Return on Investment Marketing Contribution MINUS Overhead Contribution (typically % of sales) = = Net Profit ROI = Net Profit \$ marketing cost\$10,000 net profit / \$50,000 marketing cost = 20% ROI(the return on the investment before interest and taxes) 5© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
6. 6. For Every \$1 . . .For every \$1 spent on Marketing, we generated \$5.50 inRevenue. \$27,500 revenue = \$5.50 \$5,000 marketingFor every \$1 Revenue, Cost was \$0.18 for Marketing. \$5,000 marketing = \$0.18 \$27,500 revenue 6© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
7. 7. Marketing Expense to RevenueExpense to Revenue Ratio = Total \$ Marketing cost \$ Revenue generatedIf Marketing costs are \$5,000 and we generated \$27,500 in sales: \$5000 X 100 = 18% \$27,500• Our Marketing expenses were 18% of Revenue generated 7© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
8. 8. PLANNING METRICS Budgeting – with \$ Sales Target Sales Target \$100,000 = 500 Target Orders Average Order Size \$200• Cost Per Sale (based on Past Year or Campaign) = \$ Marketing Cost / # Orders \$50,000 / 625 = \$80 Marketing Budget = Cost Per Sale X 500 Target Orders \$80 X 500 = \$40,000 8© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
9. 9. Budgeting – with # New Customers TargetNew Customer Target = 1,000Past Cost Per Order = \$ 80 (CPO)Marketing Budget = 1,000 X \$80 = \$80,000• Boss says: “you can only have \$60,000.”• Your only options: – Reduce new customer target – Only use marketing vehicles that deliver customers at \$60 CPO -- if you’ve identified any 9© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
10. 10. Breakeven Analysis (Incremental*)Gross Profit Per Sale =Average Order Size MINUS direct product costs per order \$79 - \$39 = \$40Breakeven Quantity =Total \$ Marketing Cost / Gross Profit Per Sale \$50,000 / \$40 = 1,250 orders needed to recover the marketing costs.Breakeven Response Rate =Breakeven Quantity / # Reached 1,250 / 65,000 = 1.92%• Only incremental revenue and costs of a sale are considered, without overhead and profit requirements. 10© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
11. 11. Breakeven Analysis (Incremental)Other Equations . . .Cost Per Contact =Total \$ Marketing Cost / # Reached \$50,000 / 65,000 = \$.77 eachBreakeven Response Rate =Cost Per Contact / Gross Profit Per Sale \$.77 / \$40 = 1.92% 11© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
12. 12. Breakeven Analysis with Overhead – Physical Product\$80 Sales Price + \$19 Shipping & Handling = \$99 Gross Revenue per SaleReturns and bad debt (6%) = \$ 4.80Cost of Goods Sold (COGS) = \$16.00Credit card processing fee (3%) 2.40800 number (\$2/call @ 20% of callers) 0.40Shipping & Handling costs = 15.00 \$38.60\$99 - \$38.60 = \$60.40 Gross Profit per Sale (continued) 12© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
13. 13. Breakeven Analysis: With OverheadGross Profit Per Sale = \$60.40Overhead (10%) - 8.00 Breakeven Allowable Cost Per Sale = \$52.40Profit (30% of COGS) - 4.80 Marketing Allowable Cost Per Sale = \$47.60Bring in each Sale at a cost of \$47.60 to cover overhead and profit. 13© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
14. 14. BENCHMARKS: How much can you spend to acquire a customer? (CPA)• Are you willing to just breakeven on each new customer? (Can you rely on customer Lifetime Value to generate profit)? CPA = Gross Profit Per Sale (incremental breakeven without overhead) OR CPA = Breakeven Allowable Cost Per Sale (breakeven with overhead)• Do you need to make a profit on every first sale? CPA = Marketing Allowable Cost Per Sale 14© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved
15. 15. CUSTOMER ANALYSIS: Lifetime Value (LTV)LTV = Average \$ Sales from Each Active Customer Per Year X Average # Years as Active Customer (continued) 15© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved
16. 16. Lifetime Value“Database Snapshot” Approach1. # “Active” Customers (Customers as of 1/1/12 who made at least one additional purchase in 2012, or your definition of “Active”)2. Total of all \$ sales from those Active Customers over past year Total \$ Sales from Active Customers last year = # Active Customers last year Average \$ Sales Per Active Customer Per Year (continued) 16© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
17. 17. Lifetime ValueFor EACH “Active Customer” in 2012: Month/Year of Last Purchase (in 2012) MINUS Month/Year of FIRST purchase (first purchase from you) = # Months as Active Customer Total Months from all Active Customers 12 # Active Customers Last Year = Average # Years as Active Customer (continued) 17© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved
18. 18. Lifetime ValueTotal Sales from Active Customers Last Year = \$400,000 =# Active Customers Last Year = 20 \$20,000 Average \$ Sales Per Active Customer Last YearTotal # Months “Active” from all Active Customers = 8000 = 40 =# Active Customers Last Year = 20 12 3.3 Average Years as Active Customer LTV = \$20,000 X 3.3 = \$66,000 per Active Customer 18© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved
19. 19. Social Media MetricsWhat should you measure with Social Media?Engagement or Conversions as a % of Total Likes or FollowersFacebook: # Comments and Update “Likes” # Page LikesLinkedIn # Comments and Post Clicks # FollowingTwitter replies + retweets + mentions + favorited* # Followers* All of these are reported under “Interactions.” 19© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved..
20. 20. Email MetricsRevenue Per Email = \$ Sales # Emails DeliveredClick-Through Rate (CTR) = # clicks # emails delivered 20© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
21. 21. WebsitesVisitors to Leads Conversion Rate = # leads generated for a period # web visitors for the periodVisitors to Sales Conversion Rate = # sales generated for a period # web visitors for the period 21© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.