2012 Blog

When it comes to business, only three words really count. They are  – Return on Investment.

I have always been amazed that business executives in general and marketers in particular have managed to avoid measuring every marketing initiative. Sure, many companies measure the effectiveness of some below the line activities but in my view, marketing is every interaction between a company and its potential customers. That is literally 10-15 interactions in most businesses, and the ROI of very few of these is measured.

That is pretty pathetic and a serious indictment of the marketing profession. In such a competitive business environment it is critical that we know the ROI of every investment and every initiative taken by a company. Technology certainly gives you the tools to do so.

Measuring ROI on each marketing activity is critical to proving effectiveness, and competing inside your business for scarce resources. 63% of chief marketing officers think ROI will be the primary measure of their effectiveness by 2015.

But what was profoundly revealing was that 56% of CMOs, said they feel inadequately prepared to manage ROI. That means the pressure is on to calculate ROI in ways that yield accurate, supportable numbers, particularly pertaining to marketing expenditures.

Measuring ROI effectively will help marketers add value to their organizations and attract their fair share of resources.

The math is basic, but the components aren’t always easy to figure out. Any solid ROI calculation should measure revenue generated by the marketing campaign, profit margin on the items sold, and campaign and marketing-related expenses. Profit margin can be difficult for organizations to quantify because it incorporates the cost of operations, but it’s a necessary ingredient to calculate ROI accurately.

Keep in mind that to be able to quantify revenue generated by the marketing campaign, those campaigns need to have been designed to capture responses in the form of revenue from sales.

The simplest, but highly inaccurate way of measuring the return on Investment is simply the profit divided by the total cost of the campaign.

This simple ROI calculation is a solid metric for getting a quick indication of campaign performance. This enables you to compare campaigns or month by month performance.

That formula is also useful for measuring pilot marketing campaigns, but you must take into account that they likely have one off extraordinary expenses that wouldn’t apply once project efficiencies are captured in a full-blown campaign.

Though this simple ROI calculation is a good starting point and it keeps things reasonably simple, it lacks several very important enhancements. It often doesn’t factor in all of the costs associated with the campaign, and it doesn’t consider the impact of control groups. Both of those are required to evaluate the actual revenue generated by a campaign.

One of the reasons that few companies have marketing people on their board is because they are not seen to be as fiscally responsible as other departments in the company. Marketers will need to take a more advanced approach to ROI calculation and be more financially analytical if they want to be considered in the same league as the other departments in the company—and if they want to be evaluated by similar financial measures.

While the jury is still out on how detailed these ROI calculations need to be, there is consensus that it needs to be a lot more detailed and extensive than it is now. Some marketers hold the view that advanced ROI calculations should include all of the costs associated with having a marketing department: salaries, benefits, office space, computers, software, marketing’s share of the bills (heat, electricity, etc.), plus all of the direct campaign costs. All of those costs added together would give you the “cost of campaign” figure in the formula.

Also important in advanced approaches to calculating ROI is to factor in dollars generated and purchases generated from both the target group and a control group. Doing so will help you answer important questions, such as whether the average purchase dollar amount was higher from the target group or the control group… or whether the target group purchased at a higher rate than the control group.

Another view is that this also is too simplistic as factors such as competition responses to your initiatives need to be taken into account. Also in FMCG’s for example you would need to discount retailer incentives as you would likely have to pay them anyway. Listing fees are usually a one off that would also have to be discounted.

So, there is debate about the way to calculate ROI so that you get the most accurate result. I think this will vary depending on the industry and in my view a calculation to within a percent or two is close enough.

Just remember a couple of things. Include all of the costs involved. Too often we underestimate the real cost of goods and the actual cost of a promotion or campaign. Too often we ignore the true cost of the campaign which can make a hell of a difference to the ROI.

The other thing to take into account is the sales you would have received if you did no marketing. It would not be zero, so your ROI needs to count only the incremental increase in sales generated by the promotion.

The best part is that we are now at least beginning to take it seriously. Maybe marketers can regain their seat at the boardroom table.

 

 

Ovations International put on a great Event – Celebrating their 25th year –  Great Audience response.

Congratulations to the Ovations team for your 25th year in business. Click on the link below to view Bob Pritchard  in action

Bob Pritchard Speaking

email answered on “The Bob Pritchard Radio Show”

Our second email is from Alistair Watson from Hampstead  near London.

Alistair says…………… Dear Bob, although you are obviously Australian most of your examples and interviews are American. We have some very talented people in the UK, can you feature some of them occasionally. Also, you were speaking a couple of weeks ago about Adding Value to your customers. I own a travel agency and out margins per booking are very small. How can I add value to my customers. Keep up the good work, I appreciate your advice, Regards Alistair.

Thank you Alistair for your email. Yes, I am Australian, although I have lived in the US for 25 years and I actually have had two English guests in the last 8 weeks so the UK is actually batting above average. As far as adding value to your clients……. You need to put yourself in your client’s shoes, think like they do. You say you are in the travel business. Firstly, when someone buys a ticket from you, what do you do? Most travel people take their money and give them their ticket. This is exactly what every other travel agent does. Nothing at all to differentiate you from the rest. So what can you do that is different?

How about if they buy a ticket to Greece, you give them some Greek “what to see” brochures, maybe you give them a photo copy of the section on Greece in the “Lonely Planet” travel book. How about giving them a cheap disposable camera and have them send in their best photos with a chance to win a prize at the end of the month……. Maybe you give them a CD by a Greek Superstar like Nana Mouskouri or Demis Rousos.

Another great added value is a travel adaptor that works in Greece. There is nothing worse than going to a country and not being able to plug in your phone, your computer or a hairdryer.

All of these added value items are cheap. Make sure you have your logo, name, phone number and email address on the item. Clients will love you for it.

More importantly, give them a call, drop them an email or send them a postcard when they return, asking if everything was OK, how can we improve our service for you next time?

from “The Bob Pritchard Radio Show”

But, right now let’s talk about a few of the challenges facing small business today. I’m sure a lot of you can relate to some of these issues. One question that keeps coming up is “How do I get and retain customers?” This is often raised in relation to the increasing   difficulty in getting results from advertising.

When it comes to attracting and retaining customers, two things are important to realize. Firstly it is very expensive to attract a new customer. Advertising is expensive and unless you really know what you are doing, it is highly inefficient. History has proven that it is between 15 and 50 times more expensive to get a new customer than it is to retain an existing one.

Secondly, research shows that 62% of customers across all sorts of industries do not repurchase from the same company they bought from last time. So 6 out of 10 people that come into your store or business got what they were after and received acceptable service, never came back. Most business people do not understand the importance of these facts.

Most businesses have a budget for advertising but very few have a budget for customer retention, yet it is 15 times more expensive to get a new client than retain an old one. If you put just 50% of the money you invest in advertising into customer retention, you would make a fortune. Why? Because existing customers cost next to nothing to get in the door, their average spend is higher, they do not have to be enticed with discounts, your return on investment is significantly increased and you save a lot of money on advertising.

Businesses who are successful today do not satisfy customers, because satisfying customers does not build your business, it is a recipe for going out of business. Today, you have to knock the customer’s socks off.

They need to conclude the transaction with you and say “WOW” that was a great experience. There are a lot of ways to do this, but you really have to “think” about it. Too many people today are spending all their time working in their business and not on their business.

So, going back to the original question, “how do I get and retain customers” it is really easy….. focus firstly on retaining existing customers, not attracting new ones.

The second question I hear a lot is along the lines of “I’m great at what I do, but not so great at bookwork, creating the right structure to save taxes and I really don’t know what I’m doing when it comes to marketing. I design my own advertising but it doesn’t seem to work and the list goes on.

But I’m too small, or I can’t affort to get experienced advisors, or hire an advertising agency. These are major problems because the reality is that while having a great product or service is important, running the business sucessfully is much more important.

The world is full of great products and service companies that have gone out of business because they didn’t run the business well or didn’t market their business well. There are also millions of businesses out there that have ordinary, even lousy products but run a great business with great advertising and are very profitable.

Excellent advisors are more important than a great product, but select your advisors carefully. A lot of people become consultants because they are hopeless at running a business, so check out their credentials before you hire them. The good ones might cost twice as much and that might appear to be important initially, but the good ones produce great results.

There is also no need to spend a fortune on consultants. I work with some of the best in the world in a business called Marketforce One Business Strategies where for just $2000 per month you can get advice by skype on any aspect of your business any time you want it. And you can do it for just one month if you like. If you would like more information just send me an email at bob@bobpritchard.com and I will be pleased to get back to you.

Another comment I hear regularly is that it is hard in business right now because of the state of the economy. What bullshit is that? The economy overall my be sluggish but this week there is a trillion dollars circulating around in America. How much do you want? Forget about the overall economy. If you sell widgets and you need to sell 100 a month to make a good profit, that’s three a day. If there was 100 people buying 100 widgets each before the downturn, there is still 80 eople buying 80 widgets each after the downturn. Just focus on them. There is still a huge amount of business being done every single day. You might have to look  little harder, you may have to work a little smarter, but the business is out there. If you cut your staff, cut your marketing and play it safe, I can guarantee you will go out of business.

Now is the time to get out there, get amongst it. There are more millionaires made during recessions than at any other time.

It is the time for you to use expertise, and use creativity to take advantage of the vacuume created by companies who cut back and play it safe. Also be careful about playing into the “times are tough, I need to discount to get sales’ trap. A recent Citibank study showed that 70% of all companies that began discounting, went out of business within 12 months.

If you cost of goods is $50.00 and you sell your goods for $100.00 many businesses think their profit is $50.00. But….. it could be costing you $20.00 for rent and overheads, taxes, staff holidays etc. So….. if you offer a 25% discount, you are not still making $25.00, you are actually losing $5.00 on every sale. Before you start discounting, ensure that you understand the  cost of running your business and of each item, including the cost of holding inventory, credit card costs and so on. This is why many businesses need outside expertise.

Finally before I get to my first guest, I would like to talk with you about the need for mentors. All of the really clever people I know have people around them that they ask for advice. Successful people like to help other people become successful.

 

email answered on “The Bob Pritchard Radio Show”

Our second email is from Margaret Hayes who has a hairdressing salon in Amherst, New York.

Margaret writes… great show Bob, very informative. I also bought your book, and for a small business it is really easy to follow. I am enjoying it.

You have a great chapter on ‘added value’, but I’m still not sure how to add value for clients that come to my salon. Can you give me a few pointers on what I can do? It would be great if we could have someone like you to come and do a workshop here. Do you do that? The experts don’t seem to come to smaller towns to do workshops and we need your sort of guidance so I’m sure you would get a huge turnout.

OK Margaret, let’s look at the added value issue first. There are really dozens of things you can do. You could get customers to call on approach to the salon and get a junior to park their car for them, or you could make appointments to go to their home or business if they are unable to get to the salon.

You need to make sure you have a database of all your clients with details of their birthdays and anniversaries so you can send them a special offer on their special day as an add on to what they normally have done, buy a coffee machine and give them a cappuccino or a latte when they sit down, or give them a couple of bonus movie tickets. You could also invite regular customers to come in on a specific day when they can get their normal appointment as well as having their nails done free as a bonus. You can get a nail person to come to the salon for a day at a pretty good rate. People love to feel they are special.

Margaret, they are just some of the things off the top of my head that you could do.