Why ROI Is More Important Than Your Up-front Response
“What’s a good response rate?” This question gets asked a good deal in the direct marketing industry. The response rate to a direct marketing campaign is the initial campaign indicator—or the “up-front” results. When response starts coming in, it’s the first measure of results. It’s easy to jump to conclusions about the success of a campaign or test based on this initial measure, but it’s only the tip of the iceberg when evaluating your direct marketing profitability.
Some offers draw a great percent response. Offer something for free, and you’re pretty much guaranteed to get strong up-front results, but you may not sell much of your product or service. Your responders may just take the freebie and run. If you offer a deep discount, you still may get a great response and likely sell more of your product or service, but you need to consider the impact this strategy could have on future sales. Will your customers begin to expect a low-price offer? On the other hand, if your goal is to generate leads for a sales team, then a high up-front response may be just what you’re looking for if you’re confident your sales team can convert these leads to sales.
Are you looking beyond your percent response to profitability?
Calculating your return on investment (ROI) is the ultimate measure of performance. An ROI analysis looks at the back-end results of your campaign and tells you how much money, or profit, you’re actually making. Companies use ROI to measure the success of their business, and you can use it to measure the results of a campaign, an offer, a list, new creative or any aspect of your marketing or product. ROI takes into account both how much money you’re making and the percent return; it’s a mini-P&L of campaign performance.