More Related Content Similar to Marketing Math: Key Metrics to Maximize Marketing Dollars (20) Marketing Math: Key Metrics to Maximize Marketing Dollars1. Marketing MATH:
Formulas to Maximize Your
Marketing Dollars
Bit.ly/mktgmath
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2. What’s that Formula?
These slides include
All of the marketing math formulas
You’ve probably heard about
But never understood . . .
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3. Marketing Math Formulas for:
• Marketing • Social Media
Contribution • Engagement
• ROI • Conversion Rate
• Expense to Revenue • Revenue Per Email
• Budgeting Formulas • CTR
• Breakeven Analysis
• CPA Benchmarks
• Lifetime Value
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4. 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)
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5. 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)
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© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
6. 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
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7. 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
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8. 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
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© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
9. 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
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© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
10. 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.
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© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
11. 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%
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© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
12. 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)
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© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
13. 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.
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© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
14. 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
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© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved
15. CUSTOMER ANALYSIS:
Lifetime Value (LTV)
LTV =
Average $ Sales from Each Active Customer Per Year
X Average # Years as Active Customer
(continued)
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16. 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)
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© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
17. 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)
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18. 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
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© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved
19. 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.”
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© 1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved..
20. Email Metrics
Revenue Per Email = $ Sales
# Emails Delivered
Click-Through Rate (CTR) = # clicks
# emails delivered
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21. 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
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