Traditionally, marketers have been "ideas" people, experimenting with creative ways to generate leads and create awareness. For some time, it was accepted that the benefit of marketing would be soft and qualitative in nature. Until today, ROI-based reporting and ROI Drivers for Aquisition Campaigns had long been an inexact science. But the transformation in marketing is well underway—so that this critical, revenue-connected function is now considered more of a numbers game than a creative or qualitative game.

1. A r t i c l e
Marketing and the ROI Goldmine
change is sweeping through marketing organizations everywhere. expectations are
rising—give us more, better quality leads, more quickly. the mandate of doing more
with less has never been more apparent, and pressure is increasing for marketing
teams to draw a direct line between their activities and the bottom line.
Traditionally, marketers have been "ideas" people, experimenting with creative ways to generate leads
and create awareness. For some time, it was accepted that the benefit of marketing would be soft
and qualitative in nature: We know half of our marketing activities are useful—we just don’t know
which half. We know marketing is necessary, we just don’t know how good we are at it. Until today,
ROI-based reporting had long been an inexact science. But the transformation in marketing is well
underway—so that this critical, revenue-connected function is now considered more of a numbers
game than a creative or qualitative game.
With insight into each customer’s lifecycle, preferences, and profitability, you can precisely track
which campaigns work, which ones don’t, and why. This lets you focus resources on proven tactics
so that a greater number of prospects sign up to learn more about you, and your team gets smarter
about how they use resources.
Defining rOi in the Marketing Framework
Investopedia.com defines return on investment (ROI) as profit or loss resulting from an investment
transaction, usually expressed as an annual percentage return. Formal ROI calculations include the
following elements:
• initial investment: Total cost of the investment being analyzed
• Ongoing expense: Cost to operate and maintain the investment
• Benefit: Tangible cash benefit resulting from the investment decision, the combination of increased
revenues and decreased costs
• Discount rate: The factor representing the time value of money.
While calculating ROI can be a complicated process, in general terms, positive ROI is generated by
increases in revenues and/or decreases in costs. In fact, marketers usually invoke the term without
including its complicated calculations. In this regard,to the extent that marketing programs deliver
tangible benefits that can be assigned monetary values, they are said to generate ROI.
Where Marketing Delivers Value
Marketers use marketing automation software applications to acquire and retain customers more
effectively. Marketing acquisition and retention campaigns are designed to deliver responses
from their target audiences and to set as many suitable respondents as possible on a long-term
path to a mutually beneficial relationship. Clearly, a great deal of value and potential profit rests
on the effectiveness of every communication, special offer, or invitation that leaves the marketing
department. Since positive ROI is driven by increases in revenues and decreases in costs, if
measurable revenue generation or cost savings can be associated with a response, ROI can
be demonstrated.
The business of marketing is demand generation. Results such as increased lead generation or
sales to new and existing customers are key metrics describing demand generation. Translating
these metrics into a revenue stream provides the top-line component of ROI.
CDC MarketFirst | Article

2. Marketing and the rOi Goldmine
Since the majority of marketing communications today rOi Drivers for retention campaigns
are in digital format, the cost savings from substituting
bits for atoms are tangible. Savings from replacement of Marketing managers know that sales to existing
human or paper-based interactions can be calculated customers generate higher margins than sales to new
and used to validate marketing ROI. Thus, a framework customers because they don’t carry the burden of
to calculate ROI for a marketing campaign or program acquisition costs. If fact, most companies find that the
is to determine: major portion of their profits is driven by sales to existing
customers. To the extent that the marketing department
• Cost savings at the same level of demand generation can deliver increased sales to existing customers, it will
for a given program be justifying its investment.
• New revenue generated via net new demand
The basic objective of retention campaigns is to
Because of the closed-loop capabilities of marketing increase the lifetime value (LTV) of existing customers.
automation applications, responses to marketing Calculation of the lifetime value of a customer is
programs can be measured and ROI calculations a difficult process and few companies have LTV
can be built into each program and campaign report. calculations that they use with
Thus, certain responses can be used as drivers in a great deal of confidence. However, the basic elements
ROI calculations. of LTV are the amount a customer spends and the
period of time that the customer is actively purchasing.
rOi Drivers for Aquisition campaigns Increases to either spending or longevity by marketing
New customer acquisition will always be a major are significant contributions. Some of the key ROI
component of a marketing department’s objectives. drivers for customer retention campaigns are:
Some of the key ROI drivers for customer acquisition
• increased Sales per customer: New revenue
campaigns are:
generated from increased transaction levels
• lead Generation: New revenue calculated from • Higher Margins per Sale: New revenue calculated
the expected revenue per qualified-lead-producing from cross-sales of higher margin products through
response, based on known sales conversion rates better targeting of offers
and average order size statistics
• increased House e-mail Files: Cost savings from
• Sales conversion: New revenue calculated from the migrating relationship programs to the Internet;
revenues from order-generating responses based on e.g., by acquiring e-mail addresses and receiving
actual sales permission to send e-mail
• reduced Sales contacts: Cost savings calculated • loyalty/rewards Program redemptions:
from the number of contacts during the sales cycle New revenue generated to qualify for awards
that an automated lead generation and qualification
campaign that replaces contacts generated by the • Win Back campaign responses: New
sales force, reducing the cost per sale evenue generated from responses to Win Back
campaign offers
• reduced Fulfillment costs: Calculates cost savings
as the reduced cost of automated digital fulfillment of Developing Marketing rOi reports
program-specific offers and marketing collateral
In order to develop a ROI report for a marketing
• reduced Direct Mail costs: Cost savings including
campaign, it is necessary to measure the economic
printing, postage and handling, materials and any
value of campaign responses. The ROI drivers
difference in list costs
described above should be selected, as appropriate,
• reduced call center costs: Cost savings calculated as variables for resulting calculations. Taking a lead-
from telephone and customer service rep costs for generation oriented program as a typical example,
response registration and offer fulfillment additional statistical information may be required, if it
• reduced Sales cycles: The time value of money is not available directly from the company’s sales and
and competitive advantage generated from faster financial databases:
deployment of sales campaigns • Sales conversion rates: How many leads scored as
A that enter the sales funnel result in a sale
• Sales cycle Data: Length of time an A lead spends
in the sales funnel and the number of sales contacts
needed to convert
CDC MarketFirst | Article

3. Marketing and the rOi Goldmine
• Average Order Size: Average order for the product In cases where the ROI is being calculated based on
or service that is the focus of the campaign cost savings, the following chart of standard costs-per-
• customer Acquisition cost: The current budgeted contact can be used if no other cost data is available.
cost of acquiring a new customer
Software company New Product launch eMarketing campaign rOi report
Outbound e-mail total Percent comments
Attempted 8,000 00%
Failed 00 0.6%
Bounced 50 0.89% Indicates a good list
Completed 7,650 98.75%
Unsubscribed 00 0.6% Low opt-out rate
e-mail responses total Percent comments
Download (Link ) ,50 9.%
Download + Info (Link ) ,650 .84%
Buy (Link ) 750 .7%
Total Responses 6,80 4.67% 5% overall response
Web Forms Submitted total Percent comments
Download 4,40 68.7%
Buy 560 74.67% Some problems with form completion
Projected revenues total equation comments
Sales to date $,800,000.00 (560 x $5,000)
Trials to date $0,600,000.00 (4,40 x 50% x $500)
Total to date $,400,000.00 ROI result, new revenues
For reference: Sample costs-per-contact Used to calculate rOi
contact cost per contact
Seminar ......................... $ 50 Telemarketing ................ $ –$5
Sales Contact ................ $ 0 Value Newsletter ........... $ 4
Trade Show ................... $ 00 Direct Mail ...................... $ –$
Telesales ....................... $ 5–$ 40 Products Catalog .......... $ 0.60
Personal Recognition .... $ 5 Print Advertising ............ $ 0.0
Business Letter ............. $ 0 Broadcast ...................... $ 0.0
Overnight Delivery ......... $ 5 Fax ................................. $ 0.05
Closing Literature .......... $ 5 Email ............................. $ 0.0–$0.05
Business Catalog .......... $ 7 WWW .............................. ?
CDC MarketFirst | Article

4. Marketing and the rOi Goldmine
calculating and reporting Once a campaign or program has run its course and
the results are in, it is a best-practices imperative that
Marketing rOi those results are assessed to find out what worked well
The following is an example that can be used as a and what needs improvement. Remember, marketing is
guide for developing ROI reports that monetize the not one e-mail or program. It is part of a strategy to find
value of a marketing-campaign response. This example and retain the best customers over a long time period.
identifies responses that directly contribute to sales Lessons learned from each campaign can be applied
transactions and assigns appropriate values to them. to make the next one even better. This is where classic
The scenario, based on actual Pivotal MarketFirst analysis of results, patterns, correlations, clusters, and
customer results, is as follows. trends generates real pay-offs.
A software company develops a new product,
complementary to its existing suite. The company
conclusion
decides to initiate a campaign to launch the new Marketing automation, especially when integrated with
product to current customers. the sales force automation component of a complete
CRM suite, provides a wide variety of ways to lower
The campaign consists of an e-mail announcement with costs, increase sales, and improve the accountability of
offers for a download and 60-day free trial, or to buy marketing campaigns. As the ROI imperative increases
the product. The e-mail contains two hyperlinks (one for the focus on quantifiable results and continuous
just the download and the other for more information improvement in the marketing field, these techniques
and the download) for the trial, which is the primary will be essential to the professional marketer.
objective of the campaign. There is also a link to buy
the product, of course. All call-to-action hyperlinks are
fulfilled through a web response form and then from the
company’s FTP (download) site.
For CDC MarketFirst Customers
Prospects
Sample rOi report
Consultants in our Professional Services group have
The company wants a report that projects the revenues a complete ROI toolkit to help you enhance the
generated from the campaign. The ROI report effectiveness and measurability of your marketing
accesses the server log files for relevant response data. campaigns including:
Supplementary information supplied by the marketing
department for the report: • Pre-Launch Strategy Development: Review the
process flow and all program content. Make
Selling price of the new software: $5,000 sure that proven best practices for metrics,
reporting, campaign effectiveness, and testing
Typical sales conversion rate for trial downloads: 50%
are incorporated in all aspects of your campaigns
and programs.
improving rOi: test cells, control
• Post-Launch Assessment Review: Assess what
Groups, Analysis worked best so that results will be improved in
Marketers can take advantage of the quick responses ensuing campaigns.
and closed-loop capabilities of marketing automation • Integrated Marketing Campaign Services:
applications to improve the results on their acquisition Let our consultants provide our deep industry
and retention programs by prelaunch testing and post- expertise and marketing experience, working with
launch assessment and review. you throughout campaign planning and execution.
Almost all aspects of a campaign can be tested using
well-proven test cell and control group methods. Lists,
offers, content, and process flows can all be tested
prior to the main launch, or placed continuously in a
parallel testing mode. Best results can be identified and
the program optimized accordingly to improve results.
Improved results mean improved ROI.
For more information, please visit www.marketfirst.com or call +1 877-748-6825.
Copyright © CDC Software 007. All rights reserved.
The CDC Software logo and CDC MarketFirst logo are registered trademarks and/or trademarks of CDC Software.