Return on investment — it is the lifeblood that drives our industry. The single measure of our success. The benchmark for all best practices. Isn’t it? I think so, but then why do most discussions of ROI occur before a program gets underway, not after it concludes? Why is our industry hesitant to use ROI as the fundamental evaluation of the success or failure of an initiative, not just fodder while ginning up?
Let’s face it — direct marketing is an industry that is rich with the stuff of math and analysis. We are able to gather and interpret data like no other marketing enterprise. And these measurements fall all along the spectrum of program elements:
Response Rate: the sexiest of all DM measures – or most depressing. Response rate essentially measures the extent to which an appropriately targeted audience acts on a compelling offer. The higher the response rate, the more successful these two key elements of list and offer were appropriately mated. This is a practitioner’s measure. Not surprisingly then, the most frequent and brisk discussions center on this metric.
Cost Per Lead: now we’re getting to practicalities. This metric divides the number of dollars spent by the number of leads generated in a program. It’s a dollar measurement, not a percentage measurement like response rate. This is a project manager’s measure.
Conversion Rate: This measure often has more to do with the ability of a sales team or call center to cause someone to part with their greenbacks. However, it is also an important measure of the DM practitioner’s art. It’s one thing to get lots of leads. It’s quite another to get quality leads. Conversion rate is as much a practitioner’s measure as a sales manager’s measure.
Cost Per Sale/New Customer Acquired: the measure most widely used to evaluate program success or failure. It’s very useful because it’s a direct link between the measured results of a project, however accurate and complete, and the budget objectives set at the beginning. It is essentially a measure of how effective a manager was at spending budgeted dollars. It is an expense measurement. It is the perfect ending point in most evaluative settings because most thinking and planning occurs around how much “we can afford to spend” to get a sale, or how much we have budgeted. But it simply isn’t enough. For DM efforts to be fully evaluated, ROI must be included.
Return on Investment: ROI is a measure for those up the chain. It is an asset measurement, not a budget or expense metric. It measures the value and productivity of money as it comes back onto the bottom line and then into the balance sheet, not as it goes out as budgeted or expended. Setting aside lifetime value, ROI is the essential measure of real value in an enterprise. It is the measure of the shareholder’s well being, not the job security of a practitioner or the longevity of a contract for a vendor. The little secret? I won’t tell you what it is, or else it wouldn’t be a secret, now would it?
I will give you this hint: next time a new project is discussed or a new vendor interviewed or a new initiative contemplated, count the number of times you hear or see ROI as a part of the discussion. Write down that number in a safe place. Then, at the conclusion of the project or vendor contract, be sure to count the number of times you hear or see ROI as a part of the wrap up. If pre-project and post-project counts don’t quite match, you’ve discovered the secret.