Why ROI Is More Important Than Your Up-front Response
You pick the winner
Here is a simple comparison of three offers: a control, a free gift offer and a discount offer.
|Special Offer||Control||Free Gift||15% Discount|
|Product & Fulfillment Costs(2)||$8,000||$13,600||$10,880|
|Free Book Cost(4)||$1,488|
1. Return rate is higher on free book offer.
2. Product and fulfillment costs equal $32 per order.
3. Printing, mailing and lettershop costs equal $450/M.
4. Free book cost equals $3.50 per order.
5. Overhead allocation equals 10 percent of sales.
6. ROI equals net sales less total expenses divided by total expenses.
Which offer would you say is the winner in this example?
The control offer, without a special incentive, has the lowest sales but the highest ROI.
The free gift offer generated the highest sales, but since this offer also has high returns and higher costs, it has the lowest ROI.
The 15 percent discount offer has a higher response rate than the control offer, but a slightly lower ROI. The biggest risk of this offer is that customers will begin to expect the discounted price.
You’ll need to decide the winner based on your overall business and marketing objectives. Everyone wants to increase sales and profits, but usually there is a trade-off. Higher sales may come at the price of a lower ROI, but that will help you grow your business. On the other hand, you may need to increase your profit percent, so you’ll be more interested in increasing your profit margin.
ROI can’t set your goals, but it can help you reach them.
Lisa Schmucki is chief marketing officer at MKTG Services, a provider of lists, data solutions and analytics services based in Newtown, Pa. She can be reached at firstname.lastname@example.org or (215) 867-4088.