Download at002 - RETURN ON MARKETING INVESTMENT

at002 - RETURN ON MARKETING INVESTMENT
at001 - PERSONAL CUSTOMER VALUE MAP
HOW TO USE THE APPLICATION TOOL:
Some tools provided are simply triggers to help get you started with a specific action, others produce tangible results that you can continue building on in your organization.
Print out the document to gain a good overview of the content and make it easy to apply to your situation.
STRUCTURE OF THE TOOL:
Application Tools all follow the same structure. First, the Instructions section gives you written step-by-step guidelines on how to apply the tool. Second, an example is
provided to illustrate what the output from the tool looks like. Third, templates or access to facilitating tools are provided for your own application. It is recommended you
follow this stepwise approach.
INSTRUCTIONS: at002 - RETURN OF MARKETING INVESTMENT
The ability to understand the bottom line impact of our marketing activities is crucial to driving the most value from the limited marketing investment resources available.
Without an understanding of the impact it is very difficult to improve and refine the marketing mix for optimal performance.
The intent of this tool is to map out the key questions you need to answer for any marketing activity/initiaitive and to provide you with a robust proven process that ensures
you maximize the impact and learning from the initiative.
STEPS-BY-STEP INSTRUCTIONS:
Step 1:
Begin by reviewing the key questions necessary to develop a “ROMI Mindset”. You should begin any initiative by answering these questions.
Step 2:
Next work through the “pre-planning process” and check off the tasks as you move through them. Review the “post implementation assessment” so you know
what to expect when the program is complete.
Step 3:
Review the "ROMI Formula" to ensure you understand the financial elements that should be measured as part of any thorough ROI calculation.
Step 4:
Review the example on the ROMI Metrics Worksheet, test your understanding, do you know how the numbers are calculated? Can you complete some
preliminary numbers for your project?
Step 5:
Return to the ROMI Process Pre-Planning checklist and begin working through the process. You may need to involve subject matter experts in sales, product
marketing, market research and finance to get some of the data you need. Reach out to those in the organization that can help fill in the gaps.
Step 5:
After you have implemented the program return to the post implementation assessment checklist. Develop a report that you can share with others in the
organization.
Next Steps: The key to successful ROMI calculations and communications is good planning. By identifying and agreeing on the key components you need to
measure upfront you will set yourself up for success. This process takes the mystery out of calculating marketing roi and it helps others in the organization
understand the robust process that goes into ensure marketing investments are utlized in the most effective and efficient manner.
COMPONENTS OF THE APPLICATION TOOL:
1 The ROMI Mindset
2 The ROMI Process
3 The ROMI Formula
4 ROMI Metrics Worksheet – Example
pg 1
2
3
5
6
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The ROMI Mindset
Remember determining the ROI of marketing initiatives is not just a financial calculation; it is a mindset that requires you to always ask the following questions:
GOAL: What am I trying to achieve?
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------TARGET: Who am I trying to reach?
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------METRICS: What metrics to you intend to use to measure success?
-----------------------------------------------------------------------------------------------------------------------------------------ROMI QUESTION
CHECKLIST – APPLY
THESE QUESTIONS TO
EVERY PROGRAM,
INITIATIVE AND
PROMOTION YOU
UNDERTAKE
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------BUDGET: What will I need to invest?
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------OUTCOME: How well did I do? (for this exercise: what success metrics do you use to communicate performance to relevant
stakeholders – what does the outcome you will communicate look like)
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
LEARN: How can I do better next time? (for this exercise: think of recent projects you’ve run that adds valuable experience to
this upcoming project – what have you learned in the past that can be useful now?)
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------pg 2
------------------------------------------------------------------------------------------------------------------------------------------
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The ROMI Process
Phase One: Pre-planning
• Forecasting uptake rates
• What impact do you expect the program or promotion to have on the business?
• Ideally the forecast will estimate the number of new customers, revenue/and or units sold by the initiative
• Calculating Expected Marketing Profit Contribution
• Given the forecast in the first step calculate what profits will be generated
• Calculating ROMI
• Now use the ROMI formula to include the marketing investments needed and calculate a return on marketing
investment (ROMI) expressed in simple terms such as for every $1 invested we expect to gain $x over this period of time
• Defining acceptable ranges
• What return is acceptable, do you have a hurdle rate?
• What results do you need to achieve as a minimum for the initiative to be classified successful?
• What do the stakeholders view as successful?
• Detailing risks
• ID the risks associated with the implementation of the program
• What could go wrong?
• The larger the initiative the greater the required due diligence
• In-market testing of the offer and advertising
• One way to manage risk is by using a good testing methodology
• ID a number of small groups of customers that can be used as a test groups to test different combinations of offers,
messaging and mediums as necessary
• Also gather feedback from stakeholders such as sales and channel partners that will be leveraging a program or
promotion
pg 3
STATUS: Check when Completed
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Phase Two: Post implementation assessment
• Conducting research on program or promotion’s influence on purchase behavior
• Did the program or promotions influence the purchase decision of the customer and to what extent?
•Customers can be randomly surveyed at the point of purchase, on a redemption form or after a program to determine
the “extent of influence” the program had on
• Other insights into purchase behavior can also be gathered such as:
•Did customers bring their purchase decision forward?
•Did customers switch from alternatives? (Acquisition)
•Was the customer up sold?
•Which customer’s would have bought anyway?
•What other impacts did the promotion have on customers (negative/positive?)
• Calculating true incremental revenue
• The outcome of the above research allows the application of a percentage to the incremental revenue/profit produced
by a program
• For example the research may have determined that 33% of the customers that engaged in a program purchased as a
direct result of that program
• Calculating actual Marketing Profit Contribution
•After the program has been executed, all actual costs, revenues and profits should be collated
Calculating actual ROMI and mROMI The actual ROMI and mROMI can then be calculated and compared with the forecast/budgeted numbers. • Share learnings - use data to influence others in the organization
• What new insights can be shared with others in the organization?
• A simple overview presentation detailing how the program contributed to driving profitable growth for the business
should be developed and presented to key stakeholders
• Adding to marketing metric database
• Defining acceptable ranges of performance
• The program can help establish new benchmarks and ranges of acceptable performance
• For example if we have been able to prove a return of 25% then it may be argued that future programs of a similar nature
pg 4
should use this as a hurdle rate
STATUS: Check when Completed
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The ROMI Formula
Marketing ROI = Incremental Profit – Marketing Investment
Marketing Investment
Fully
Loaded
Costs
Total
Incremental
Revenue
Contribution
Margin
Marketing
Investment
Recovery
Marketing
Investment
The marketing investment
is made
pg 5
Incremental
ReturnN30.*
Revenue is generated
as a result of marketing
A portion of the revenue pays for
cost of goods, leaving
the gross margin
Another portion covers the
original investment leaving
the return
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Romi Metrics Worksheet – Example
Example Project Data
Direct Mail Piece – Units: 10,000
Cost per piece (all inclusive – creative, print, list rental, postage etc.) - $2
Marketing Investment: 10,000 x $2 = $20,000
Incremental Contribution Margin: 30%
Expected open rate: 7% - 1,400
Expected purchase rate: 10% - 140
Average revenue per purchase: $500
PROJECT
EXAMPLE
PROJECT
YOUR
PROJECT
HERE
pg 6
MARKETING
INVESTMENT
$
20,000
INCREMENTAL
REVENUE
$
70,000
FULLY
LOADED
COSTS
$
49,000
INCREMENTAL
CONTRIBUTION
MARGIN
$
21,000
ROMI (INDEX)
(INCREMENTAL
REVENUE /
MARKETING
INVESTMENT)
MROMI (INDEX)
(ROMI X
CONTRIBUTION
MARGIN %)
MARKETING ROI
(PERCENTAGE)
((CONTRIBUTION
MARGIN – MARKETING
INVESTMENT)
+ MARKETING
INVESTMENT)
3.5 (expected $3.5
in incr. revenue per
$1 invested)
1.05 (expected
$1.05 in incr.
contribution
margin per $1
invested)
5%