Marketing ROI – How To Do It!

November 12, 2010 by Tim
Filed under: Uncategorized

Calculating Marketing ROI

Evaluating the success of your direct mail marketing campaigns is what your Return On Investment or ROI stands for.

A control group is a random sample of customers who do not receive a direct marketing offer and their behaviour may be compared to a similar, randomly generated group of customers who don’t receive one.

This type of direct marketing campaign analysis can be performed over time to compare two groups before, during and after a specific campaign period–whether days, weeks, months, or otherwise.

The Control

Observing the behaviour of a control group versus a similar group of targeted customers allows one to calculate the incremental campaign revenue generated by, and the overall return on investment (ROI), or a direct marketing campaign. The control is the package your trying to beat with the new test.

This type of analysis has been used in direct marketing for over a 100 years this is how you determine if you would like to roll out a large 500,000 piece mailing but your projections and assumptions must be based on statistical facts or real like mailing campaign results.

Before a direct marketing campaign analysis may be conducted, it is important to know the following:
A time series, control group e-mail marketing campaign analysis will seek to answer the following questions:

1. How much more revenue was generated from coffee cup premium by the e-mail campaign?
2. Given the costs, what is the overall return on investment (ROI) for the e-mail marketing campaign?

Target Group

…coffee mug premium buying behaviour may be compared to a randomly generated CONTROL_GROUP of 500 customers who receive no offer.

Both groups are best evaluated on a week-to-week basis: before, during and after the campaign period. A $PRODUCT variable will capture the amount of coffee mug premium revenue that is generated from each target group and control group customer.

Analyzing the target group and control group customers, over time, according to the variable will provide an answer to question 1: how much revenue did the e-mail campaign generate.

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Determining an overall ROI for the campaign requires that the costs involved to create and run it be subtracted from the $100 in revenue generated by it.

Let’s assume that the following costs were incurred in order to execute the e-mail marketing campaign:
Creating and testing the e-mail blast template – $50
Programming the website to accept online payments – $25
Staff time to plan and manage the e-mail campaign – $30 Coffee mug premium $300

Since our total costs were $405, an analysis would reveal that the overall ROI for the e-mail campaign is $40.

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