Catalog and Direct Selling: Measure Your Success
A pro forma ROI, run prior to the final go/no go decision for a campaign, can be less detailed but should follow the same general guidelines as the P&L version. The chart above is an example of a pro forma that uses projected data, based on historical mailing performance and established corporate benchmarks for costs, to establish the figures for the ROI calculation. Going into the mailing, the company knows that if, for example, the required return on capital is 30 percent, the campaign in question will dramatically exceed that. From here, adjustments can be made in the plan to perhaps mail deeper or more frequently to "water down" the ROI to a point where sales are maximized and profits are minimized down to the required level of return.
As you can see, ROI analysis isn't difficult to do, it just takes a little time to set up the process to run the calculations. Once set, the findings can be powerful. ROI analysis, run correctly, is as likely to find money left on the table as it is to find pet projects that will never be worth the money.
Steve Trollinger is executive vice president at J. Schmid & Associates, Mission, Kan. You can reach him at (913) 236-8988, or via e-mail at firstname.lastname@example.org.