Posted on

Return on investment

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.