The Never Ending ROI Story, Part II

by editor , David Baker, Jul 11, 2005, 1:45 PM

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In last week's article, I discussed the importance of taking a broader view on return on investment (ROI). To give your e-mail ROI story more significance, you should include four key areas: financial returns, customer value, internal efficiencies, and learning and progression. These will strengthen and add punch to your ROI story. This week I'll discuss the one component that is probably most familiar to all of us who run or sell programs: financial returns. You can't live without them, but you also can't survive on numbers alone.

As Stephen Covey says, "Begin with the end in mind." It's vital that you set an initial goal so you, your team, and your organization know where your program is and where it's going. Make the goal public knowledge; if no one knows what will signify a successful program then the numbers won't mean anything to executives or business sponsors.

The traditional form of ROI equations is a 2:1 or 3:1, which is not surprising. But be cautious - numbers are not the end-all in justifying returns. What you are traditionally trying to find is the total benefit to your company in financial terms based on the total expenditure for the program. Keep in mind that ROI is not just a total return, but an interpretation of the numbers that reflect the value your efforts have on your business.

There are other financial models that can influence an ROI story such as cost of marketing, cost of response, cost of lead, cost benefit analysis, cost of e-mail delivered, cost per click, conversion rate, and average order value, to name a few. Each will have a financial value and will tell you something about the significance of your story.

Here are five strategic ways to make the numbers stand out:

1. Numbers should have verbs. Now you may think I'm crazy, but remember you only get one chance to tell this story, so make it actionable. For example, "We achieved a 3:1 return on our investment for that marketing program" doesn't tell me much about the value of that program or your resulting action plan. I've found by sandwiching the return numbers with benchmarks and action statements, you can add punch to your story.

2. Numbers are only meaningful when compared against something. For example, a 3:1 return means nothing if you were driving 5:1 returns last year. So get all your benchmarks in order and reach an agreement on a baseline. Then you can measure against that until you find a more meaningful baseline.

3. Conversion rates and other measurements can be subjective. Make sure your team understands and agrees on what you are reporting.

4. ROI also stands for return on interest. Make sure your numbers mean something to the business and the people getting the report. You also want to present the numbers in an easy-to-digest way. I've found it useful to solicit quotes from executives to help convey the report's value in an easy-to-interpret format.

5. Your statistics and results should be portable, meaning they stand on their own. You can't always be there to present your successes, so develop reports into formats that are self-explanatory or present them in dashboard formats.

Toward the end of these articles on e-mail ROI, I'll tell a few stories based on two types of clients. Client A is very transactional and Client B is brand-centric (products are sold through distribution, thus don't have a transactional event to measure).

Before we begin to build these stories, we should recognize a few items we can potentially track for each program based on two very different goals.

For Client A:

Cost of marketing, e-mail, click, impression, acquisition, lead
Total revenue growth
Repeat customer revenue (click through)
New customer revenue (click through)
Conversion rate (impression to click through)
Revenue per e-mail (click through)
Shopping cart analysis

For Client B:

Cost of marketing, reach, impression, click, acquisition, lead
Response by customer segment (loyalty factor and who is migrating through the brand lifecycle)
Response rate trends (by segment to understand loyalty to a type of program)
Historical click response by segment

I'm sure many of you use derivatives of these in some form. Just remember the numbers alone can't tell the story. Your story should infuse big-picture elements like where you were before you started, what you specifically did to this program and what you are planning to do with the results.

I'll continue to build on this story next week with an explanation of customer returns.

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