In a previous article (ROI-What does it mean?) I spoke about how I believe that Return-On-Investment has killed businesses due to the shortsightedness of the strategy. In this post I would like to look at the true cost of a ROI structured strategy.
ROI was a phrase coined alongside the advent of the internet. At this point you could run analytics to show exactly how much volume was driven through marketing activity.
You often see 500% ROI, proven ROI, returns guaranteed et al. In my mind ROI should simply stand for ‘Ruining Our Industry’. But how do I substantiate my thinking?
Well if you look online you’ll find various methods of working out the ROI of a campaign. These usually include:
Number of pieces being sent out, the cost of design, printing costs and distribution costs.
You then work out ‘response rates’, ‘conversation rates’, ‘average order value’ and ‘quantity of orders from clients during the year’.
This gives you the total campaign costs, cost of each enquiry, cost of each new customer and therefore a ROI figure.
All good so far? Standard practice in order to work out if a campaign had been successful, no? Cost of outgoings against cost of incomings. Simple.
However, the process doesn’t start and stop at money spent and money in. So, this is where the issues lie. There are many other factors that need to be included:
Cost of marketing director time during meetings.
Cost of staff time to proof copy.
Cost of internal team to manage the process and design company.
Initial calls to the prospective clients.
Follow up meetings.
Travel costs to the meetings.
Lunches to discuss the project.
Then add the extras including NI, desk space, telephone calls and line rental, pension etc.
Now, once these costs are added, suddenly the ROI figure seems a lot less sexy (perhaps why marketing companies don’t include them? Hmmm). You can see that small creative marketing campaigns can often COST the business and actually end up losing money.
So what do we suggest? Well, in our mind the only way to work out what a business needs to do to win new clients is to sit down quietly, look at the type and amount of business you need to win. Look at the sales cycles and materials currently being used within business to win them. See where the holes are within your current process and fine tune everything before you go out to win new clients.
This way it will reduce time and management wastage, you will be creating sales and marketing materials with a long game approach subsequently leading to much better opportunities to win business.
We would also suggest some market research to see who you are up against and what they are doing and saying. This may give you an insight previously lacking as you will gain knowledge of what you need to say to dis-empower the opposition and give you an even better chance of winning new business.
If you're looking for further reading you might find my book a helpful resource. Why You? is free to download.
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