1 Marketing MATH: Formulas to Maximize Your Marketing Dollars Bit.ly/mktgmath
Dec 05, 2014
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Marketing MATH: Formulas to Maximize Your
Marketing Dollars
Bit.ly/mktgmath
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What’s that Formula?
These slides include
All of the marketing math formulas
You’ve probably heard about
But never understood . . .
© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
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Marketing Math Formulas for:
• Marketing Contribution
• ROI • Expense to Revenue • Budgeting Formulas • Breakeven Analysis • CPA Benchmarks • Lifetime Value
• Social Media • Engagement • Conversion Rate • Revenue Per Email • CTR
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Marketing Contribution
$ Sales Shipping and Handling Fees Gross Revenue Returns and Bad Debt Net Revenue Cost of Goods Sold (COGS), shipping, 800#, credit card costs Gross Profit Marketing Costs Marketing Contribution (to profit and overhead) © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
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ROI: Return on Investment
Marketing Contribution MINUS Overhead Contribution (typically % of sales) = = Net Profit ROI = Net Profit $ marketing cost $10,000 net profit / $50,000 marketing cost = 20% ROI (the return on the investment before interest and taxes) © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
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For Every $1 . . .
For every $1 spent on Marketing, we generated $5.50 in Revenue. $27,500 revenue = $5.50 $5,000 marketing For every $1 Revenue, Cost was $0.18 for Marketing. $5,000 marketing = $0.18 $27,500 revenue © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
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Marketing Expense to Revenue
Expense to Revenue Ratio = Total $ Marketing cost $ Revenue generated If Marketing costs are $5,000 and we generated $27,500 in sales: $5000 X 100 = 18% $27,500 • Our Marketing expenses were 18% of Revenue generated © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
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PLANNING METRICS Budgeting – with $ Sales Target
Sales Target $100,000 = 500 Target Orders Average Order Size $200
• Cost Per Sale (based on Past Year or Campaign) = $ Marketing Cost / # Orders $50,000 / 625 = $80 Marketing Budget = Cost Per Sale X 500 Target Orders $80 X 500 = $40,000 © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
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Budgeting – with # New Customers Target
New Customer Target = 1,000 Past Cost Per Order = $ 80 (CPO) Marketing Budget = 1,000 X $80 = $80,000 • Boss says: “you can only have $60,000.” • Your only options:
– Reduce new customer target – Only use marketing vehicles that deliver customers at $60 CPO -- if
you’ve identified any © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
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Breakeven Analysis (Incremental*)
Gross Profit Per Sale = Average Order Size MINUS direct product costs per order $79 - $39 = $40 Breakeven Quantity = Total $ Marketing Cost / Gross Profit Per Sale $50,000 / $40 = 1,250 orders needed to recover the marketing costs. Breakeven Response Rate = Breakeven Quantity / # Reached 1,250 / 65,000 = 1.92% • Only incremental revenue and costs of a sale are considered, without overhead and profit requirements.
© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
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Breakeven Analysis (Incremental)
Other Equations . . . Cost Per Contact = Total $ Marketing Cost / # Reached $50,000 / 65,000 = $.77 each Breakeven Response Rate = Cost Per Contact / Gross Profit Per Sale $.77 / $40 = 1.92% © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
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Breakeven Analysis with Overhead – Physical Product
$80 Sales Price + $19 Shipping & Handling = $99 Gross Revenue per Sale Returns and bad debt (6%) = $ 4.80 Cost of Goods Sold (COGS) = $16.00 Credit card processing fee (3%) 2.40 800 number ($2/call @ 20% of callers) 0.40 Shipping & Handling costs = 15.00 $38.60 $99 - $38.60 = $60.40 Gross Profit per Sale (continued) © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
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Breakeven Analysis: With Overhead
Gross Profit Per Sale = $60.40 Overhead (10%) - 8.00 Breakeven Allowable Cost Per Sale = $52.40 Profit (30% of COGS) - 4.80 Marketing Allowable Cost Per Sale = $47.60 Bring in each Sale at a cost of $47.60 to cover overhead and profit. © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
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BENCHMARKS: How much can you spend to acquire a customer? (CPA)
• Are you willing to just breakeven on each new customer? (Can you rely on customer Lifetime Value to generate profit)?
CPA = Gross Profit Per Sale (incremental breakeven without overhead)
OR CPA = Breakeven Allowable Cost Per Sale (breakeven with overhead)
• Do you need to make a profit on every first sale? CPA = Marketing Allowable Cost Per Sale © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved
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CUSTOMER ANALYSIS: Lifetime Value (LTV)
LTV = Average $ Sales from Each Active Customer Per Year X Average # Years as Active Customer (continued) © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved
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Lifetime Value
“Database Snapshot” Approach 1. # “Active” Customers (Customers as of 1/1/12 who made at least one additional purchase in 2012, or your definition of “Active”)
2. Total of all $ sales from those Active Customers over past year Total $ Sales from Active Customers last year = # Active Customers last year Average $ Sales Per Active Customer Per Year (continued) © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
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Lifetime Value
For EACH “Active Customer” in 2012: Month/Year of Last Purchase (in 2012) MINUS Month/Year of FIRST purchase (first purchase from you) = # Months as Active Customer Total Months from all Active Customers 12 # Active Customers Last Year = Average # Years as Active Customer (continued) © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved
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Lifetime Value
Total Sales from Active Customers Last Year = $400,000 = # Active Customers Last Year = 20 $20,000 Average $ Sales Per Active Customer Last Year Total # Months “Active” from all Active Customers = 8000 = 40 = # Active Customers Last Year = 20 12 3.3 Average Years as Active Customer LTV = $20,000 X 3.3 = $66,000 per Active Customer © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved
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Social Media Metrics What should you measure with Social Media? Engagement or Conversions as a % of Total Likes or Followers Facebook: # Comments and Update “Likes” # Page Likes LinkedIn # Comments and Post Clicks # Following Twitter replies + retweets + mentions + favorited* # Followers * All of these are reported under “Interactions.” © 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved..
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Email Metrics
Revenue Per Email = $ Sales # Emails Delivered Click-Through Rate (CTR) = # clicks # emails delivered
© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
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Websites
Visitors to Leads Conversion Rate = # leads generated for a period # web visitors for the period Visitors to Sales Conversion Rate = # sales generated for a period # web visitors for the period
© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
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