What Matters Is the Perception of Value, Not So Much the Product

A lot has been written recently on how the perception of value rather than a formularized multiple of “cost” can help guide your pricing decisions. If you can honestly get the customer to perceive a higher value for your product than a simple markup on cost, it permits you a higher ROMI and a greater ACPO.

A lot has been written recently on how the perception of value rather than a formularized multiple of “cost” can help guide your pricing decisions.

In a previous blog post, I recounted the story of the “thank you” gift given to the U.S. Ambassador to Brazil by the chairman of the American Chamber of Commerce. He presented Madame Ambassador with a small blue Tiffany box and said:

“Here is a small gift to show our appreciation for your support.”

Her answer should be writ large on Tiffany’s advertising.

“There is no such thing as a small gift from Tiffany.”

That says it all. Imagine that whatever was in the Tiffany blue box had actually been purchased less expensively from some other source. Would anyone question that the gift’s perceived value grew exponentially when it appeared to be from Tiffany? I remember a humorous ad in the university newspaper offering Brooks Brothers, Paul Stuart, and J. Crew labels to sew into your discount purchased garments to upgrade them by endowing them with the right Ivy League cachet. Somebody understood the magic of perception.

If you haven’t watched Flint McGlaughlin’s excellent presentation from MECLABS Institute you should. His insights make a very strong case for his pricing methodology, which is really worth studying.

Pricing of products or services is one of the key strategic aspects of all businesses. It is fairly easy to look at what your competitor is doing and use that as a benchmark. But “me-too” market pricing is seldom enough and certainly not the way to have a big success. If you can honestly get the customer to perceive a higher value for your product than a simple markup on cost, it permits you not only a higher ROMI (Return on Marketing Investment) but it also often provides a greater allowable cost per order (ACPO) — more money with which to promote, more customers and, hopefully, greater profits.

The profusion of “subscription” offers in the marketplace is testament to the simple economic truth that if you can engage or enroll someone in a program of purchases, the likelihood of being able to transform a “product” into a “service” is greatly enhanced. And services tend to have higher margins. You may remember the story of the 40 or so Microsoft executives in Brazil who, when asked how many had subscriptions, very few hands went up. But when asked how many had Netflix, virtually all of the hands went up. Netflix had managed to eliminate the negative perception some people have to a “subscription” simply by not using the dreaded “S” word.

What has been surprising is that Netflix competition’s pricing appears to have been forced down to undercut Netflix. Looking at all of the streamers, there appears to be much too little effort to segment customers, to determine their individual perceptions of the value of the services (other than to see how many people subscribe and at what cost) and to reengineer the offerings to cater to perceived values. As Rafi Mohammed, the founder of “Culture of Profit,” wrote in the Harvard Business Review:

A one-price-fits-all strategy fails to acknowledge the simple fact that for any product or service, customers have unique needs and a different willingness to pay. With few rivals, mandating all-you-can-watch pricing was once tolerable. But to win in today’s competitive market, streaming companies need to step up their pricing strategies by offering choices to better accommodate the needs of their customers.

He hits the jackpot when he observes, “ … customers have unique needs and a different willingness to pay” and these needs and this willingness are driven, to a significant degree, by how much each customer perceives the services to be worth. That perception reflects the subscriber’s assessment of the channel’s content. For certain affluent customers, the more content that is unique and the subscriber “believes” will meet his/her tastes, the more likely to purchase a premium package, especially if it has “exclusive” content. The couch potato who is less choosy and has a tighter budget will probably go for the cheapest option.

As we can see in this example, the pricing has little to do with the product and service “costs,” which are probably similar for both the premium and economy versions. What matters is the perception of value.

If you don’t embrace the reality that perception may matter more than some other criterion for pricing and how your prospect looks at your offering, you may never have given anyone a little blue box from Tiffany.

How to Save Money on Postage

When done correctly, direct mail can be a very cost-effective way to reach targeted prospects and customers. Your return on investment typically exceeds most other forms of marketing. However, inefficient list targeting and poor mail piece design can cost you a lot of money. Because postage rates are rising every year, it is very important to keep your postage rates as low as possible. So now, let’s help you maximize your ROI in your direct mail marketing.

This JFK Forever stampWhen done correctly, direct mail can be a very cost-effective way to reach targeted prospects and customers. Your return on investment typically exceeds most other forms of marketing. However, inefficient list targeting and poor mail piece design can cost you a lot of money. Because postage rates are rising every year, it is very important to keep your postage rates as low as possible. So now, let’s help you maximize your ROI in your direct mail marketing.

Lists: Save Postage With Good Lists

  • People: Sending to the right people really matters! Target your lists to reach only the people most likely to be interested in your product or service. There are many tools available to help you to better target people. You can profile your mailing lists utilizing the amazing amount of information accessible today on households and businesses. This will give you valuable information to know exactly who your best customers are and find prospects just like them.
  • Clean: How old is your data file? You can reduce your undeliverable mail by updating your lists at least every three months. There are many data hygiene resources available to keep your list up-to-date, such as Delivery Point Validation to eliminate invalid or incomplete addresses, National Change of Address (NCOA) to get updated addresses for people who move, “Do not mail” purging to eliminate those who prefer not to receive mail, Deceased recipient purging and many others. You can control mailing waste, save on postage and printing. Continue to reach customers even after they move so you do not lose out on sales.

Postage is not the same for everyone. Some people pay more than others. USPS offers significant postage discounts to mail pieces that are designed and addressed correctly for processing on automated equipment. The following tips will help you to insure your mail qualifies for the lowest postage rates.

Design: The Wrong Design Can Cost You a Fortune

  • Size: For lower postage rates, keep your mail piece at letter size, which is a minimum of 3 ½” high by 5” long and a maximum 6” high by 10½” long. Larger mail pieces fall into the flat category. Flats can cost more than twice as much per piece as letters. The maximum allowed size is 12” high by 15” long.
  • Aspect Ratio: Letter size automation mail must be rectangular. The aspect ratio (length divided by height) has to be from 1.3 to 2.5. Mail pieces that fall outside those ratios could cost twice as much in postage.
  • Address: Make sure your address and barcode block on letter size mail fits into the USPS OCR read area. If it doesn’t fit, you pay for it with additional postage. Your mail service provider can give you a template to guide you.
  • Panels: Tri-folded self-mailers must be addressed on the center panel to qualify for discounted automation postage.
  • Folds: On all folded self-mailers, the final fold must be either below or to the right of the mailing address. Any other fold configuration will result in additional postage.
  • Weight: Whenever possible, keep the weight of a folded self-mailer under 1 ounce. You can use minimum 70# text paper and 1 inch tab closures. When your mailer is over 1 ounce you must use minimum 80# text paper and larger tabs. Mailers over 3 ounces must go in an envelope.
  • Thickness: Mail pieces that are too thin will cost more postage, so keep your piece at least 0.009” thick and you can save 25 cents or more per piece. The maximum thickness for letter size mail is ¼” and for flat size is ¾”.

There are many more methods, but these are the most common ways for you to save on postage. Keep your direct mail at the lowest postage rates possible in order to maximize your ROI. If you are unsure of a new design, consult with your mail service provider before you print it. Many times, the only way to get a poorly designed mail piece to be accepted by the post office is to put it into an envelope. This is a waste of a pretty mailer, as well as a waste of money. Start saving on your postage now.

How Much Should You Spend on Google AdWords?

One of the most frequent questions I receive about Google AdWords is, “How much should I be spending on my AdWords campaign?” That’s a great question, and the short answer is, “It depends.”

Editor’s Note: Don’t miss Phil Frost’s upcoming webinar “Old School SEO Is Dead: What you can do to adapt to Google and the new world of search marketing,” live on February 25. Click here to register.

One of the most frequent questions I receive about Google AdWords is, “How much should I be spending on my AdWords campaign?” That’s a great question, and the short answer is, “It depends.” One of the great things about AdWords is that it is highly customizable, allowing you to make the decisions that best fit your business needs. The downside is that it is not easy to see at a glance how best to manage your AdWords budget.

Fortunately, we have developed a formula that allows you to plug in your numbers and calculate a realistic budget. It breaks down into two phases: Testing and ROI.

Phase 1: Testing

When you begin your Google AdWords campaign, you will need to test several ideas to see what works for you and what doesn’t. While some campaigns are profitable right out of the gate, many others are not. Consider your testing phase to be a form of market research, and plan to invest those dollars without the expectation of getting them back.

Before you begin, gather the following information:

  • Target Keywords Cost Per Click (CPC): Google AdWords follows a pay per click (PPC) model. No matter how many times your ad appears, you only pay when a prospect actually clicks on it. For each keyword, you will pay a different amount of money for that click. This is known as the CPC, or cost per click. For example, Google estimates that “coffee shop” costs $2.90 per click, while “mortgage broker” costs $13.76.

Make a list of the keywords that you want to test, and then use the Google AdWords Keyword Planner Tool to estimate the CPC for each of those keywords. Remember that this is just an estimate, so your actual cost may be higher or lower.

  • Time Frame: How long can you spend in the testing phase before you need to see your results? This is partly dependent on your industry and the keywords you choose. Some keywords have a higher search volume than others, making it easier to get results in a shorter time frame. Also consider your normal sales cycle. Do customers tend to purchase in one day, or does it take months for them to make up their minds? The lower your search volume and the longer your sales cycle, the longer it will take for you to obtain accurate data.
  • Sales Conversion Rates: As a general rule of thumb it’s safe to estimate that 1 in 100 people (1 percent) who view an AdWords ad will click on it, and 1 in 100 clicks (1 percent) will convert into a paying customer. These are estimates, and your ads might drive more or less traffic, but they work for planning purposes in the testing phase.

Now you are ready to put together your testing budget:

  • Per Keyword Cost to Test: If you can turn 1 in 100 clicks into a customer, then the estimated cost per sale is the cost per click (CPC) divided by 1 percent. For example, a keyword that costs $3 per click will cost you an estimated $300 for one sale. Go through the same process for each keyword you want to test, and add up the results to get your total budget.
  • Monthly Testing Budget: To generate a per-month Google AdWords budget, divide your total keyword costs to test by the number of months you want to allot to the testing phase. For example, if your total costs calculated earlier are $2,000, then you could budget $500 per month for 4 months. Or if you wanted to test faster, then $1,000 per month for 2 months.

Phase 2: ROI

Once your testing phase is complete, and you have generated a handful of sales from your ads, then it’s time to move into the ROI phase. The goal here is obviously to maximize return on investment from AdWords.

What should your budget be in the ROI phase? If your ads are profitable, then the answer is you should ditch your budget altogether! If every dollar you spend nets you more than a dollar in sales, it only makes sense to invest as many dollars as possible.

While many businesses focus on writing better ads, which improves the AdWords quality score and reduces the cost per click (CPC), that’s only half of the equation. The real magic comes from the EPC, or earnings per click.

To find your EPC, just multiply your customer value times your conversion rate. Your Customer Value is the average amount that one customer spends on your product or service minus your fulfillment costs. Your conversion rate is the percentage of clicks that become paying customers. So if the customer value is $100 and you have a 1 percent conversion rate, your EPC is $1.00.

Why Is EPC so important?

Well, it tells you exactly how much you can afford to pay per click for every single keyword in your account! If you pay more than your EPC, then you’ll be unprofitable. If you pay less, then you’re profitable. It’s as simple as that.

That means the key to AdWords success is to maximize your EPC by increasing both your customer value and your conversion rates.

Google AdWords is a highly customizable and extremely powerful advertising network, but it can be a bit overwhelming for newcomers. That’s why I put together an AdWords checklist to help you get your campaigns set up for success. Click here to get my Google AdWords checklist.

Hiding Tax Increases: USPS Taps Mailers’ Budgets, Again

When the cost of oil and gas plummets, that’s when states—looking for revenue—make a move to raise taxes on gasoline, in hope voters will hardly notice. Of course, when the price of gasoline inevitably increases months or years later, that tax on gasoline becomes painfully obvious and more pronounced: Small cars get driven, while the big guzzlers stay in the garage or showroom. Conservation rules the day.

When the cost of oil and gas plummets, that’s when states—looking for revenue—make a move to raise taxes on gasoline, in hope voters will hardly notice. Of course, when the price of gasoline inevitably increases months or years later, that tax on gasoline becomes painfully obvious and more pronounced: Small cars get driven, while the big guzzlers stay in the garage or showroom. Conservation rules the day.

Like a tax-hungry legislature, the United States Postal Service is looking to raise postage again—a surprise rate hike request, given the exigency first taken from mailers’ pockets last year that is still in effect today. The U.S. economy may be back—but marketers aren’t stupid on postage, they well know the pain. Nothing takes business elsewhere and more rapidly than unplanned, surprise cost increases.

My mindset on the entire exigency has always been suspicious. Purportedly to recover lost funds from the impact of the Great Recession (2008-09), the USPS exigent increase, on top of the inflation-indexed release of 2014, has represented a collective 6 percent tax of a different kind. What business gets to pass along its Recession “losses” to its customers? Direct mailers, unlike drivers at the pump, have very much noticed.

Perhaps the economy is doing well—heck, even direct mail volume is holding up. However, better economic times—which can cover some fiscal sins—can’t hide what needs real fixing inside the Postal Service. We all know that USPS deficits and defaults, which postal management appeared to try hard to avoid, with cost-cutting, network rationalization and other initiatives, are really attributable to Congressional mandates, and not the Recession or digital migration.

Well the U.S. economy is moving in the right direction, and has been for six years, and may grow another 3 percent or more this year (2014 fourth quarter aside). Business outlooks are generally good, and Apple among others just set a quarterly earnings record in profit. Jobs have come back, though the labor participation rate lags, and pay packets have barely budged. The stock market, volatile yes, is booming again. Few may feel very secure, but the underlying data shows the recession of 2008-2009 is far behind us.

Even the USPS knows that the U.S. economy is growing. Direct mail volume held its own in 2014—the digital death knell has been greatly exaggerated. Perhaps cooking up the exigency, and another, surprise inflation-indexed increase this year, is the Postal Service’s way of taking another revenue injection when the going is good. Certainly that’s more reliable income than waiting for Congress to act on what is most meaningful: backing off ridiculously punitive, pre-funding requirements for retiree health benefits, letting the USPS offer employees its own healthcare plans, and halting silly moratoriums on USPS infrastructure needing to resize to fit the times.

I always thought Congress, with the USPS in fiscal crisis and default, and a difficult severe recession, would have prompted members to act. The White House, too. Nothing in the way of new reforms ever emerged. Maybe Congress, too, is waiting for “good times” again to stage its next postal act. Let’s hope this next one doesn’t cost mailers even more. The present situation is unsavory enough.

How Do You Spell ROI?

Return on Investment: Everybody’s talking about ROI, but not everyone agrees on what it is. Given the various ways that I’ve heard marketers bandy about the term ROI, I wonder how many of them really understand the concept, and how many just use the term as a buzzword. There’s certainly a disconnect between the way many marketers use of the term and the traditional definition embraced by CEOs and CFOs.

Return on Investment: Everybody’s talking about ROI, but not everyone agrees on what it is.

Given the various ways that I’ve heard marketers bandy about the term ROI, I wonder how many of them really understand the concept, and how many just use the term as a buzzword.

There’s certainly a disconnect between the way many marketers use of the term and the traditional definition embraced by CEOs and CFOs.

A study by The Fournaise Group in 2012 revealed that:

  • 75 percent of CEOs think marketers misunderstand (and misuse) the “real business” definition of the words “Results,” “ROI” and “Performance” and, therefore, do not adequately speak the language of their top management.
  • 82 percent of B-to-C CEOs would like B-to-C ROI Marketers to focus on tracking, reporting and, very importantly, boosting four Key Marketing Performance Indicators: Sell-in, Sell-out, Market Share and Marketing ROI (defined as the correlation between marketing spending and the gross profit generated from it).

So CEOs clearly want marketers to get on board with the true definition of marketing ROI. You can calculate marketing ROI in two different ways:

1. Simple ROI:
Revenue attributed to Marketing Programs ÷ Marketing Costs

2. Incremental ROI:
(Revenue attributed to Marketing Programs – Marketing Costs) ÷ Marketing Costs

Either of these definitions is consistent with the classic direct marketing principles of Customer Lifetime Value (the “R”) and Allowable Acquisition Cost (the “I”).

Back in 2004, the Association of National Advertisers, in conjunction with Forrester Research, did a survey on the definition of ROI where respondents could select from a menu of meanings. The results showed that there was no definitive definition of ROI, but rather, that marketers attribute up to five different definitions of the term and many use it to refer to many (or any) marketing metrics.

Member Survey of Association of National Advertisers on meaning of ROI
(multiple responses allowed)

  • 66 percent Incremental sales revenue generated by marketing activities
  • 57 percent Changes in brand awareness
  • 55 percent Total sales revenue generated by marketing activities
  • 55 percent Changes in purchase intention
  • 51 percent Changes in attitudes toward the brand
  • 49 percent Changes in market share
  • 40 percent Number of leads generated
  • 34 percent Ratio of advertising costs to sales revenue
  • 34 percent Cost per lead generated
  • 30 percent Reach and frequency achieved
  • 25 percent Gross rating points delivered
  • 23 percent Cost per sale generated
  • 21 percent Post-buy analysis comparing media plan to actual media delivery
  • 19 percent Changes in the financial value of brand equity
  • 17 percent Increase in customer lifetime value
  • 6 percent Other/none of the above

While I couldn’t find an update of this study, clarity around the definition doesn’t seem to have improved in the last 10 years, given the results of The Fournaise Group survey. And the increased emphasis on digital and social media marketing in the last 10 years has probably made it worse. The Fournaise Group found that 69 percent of B-to-C CEOs believe B-to-C marketers now live too much in their creative and social media bubbles and focus too much on parameters such as “likes,” “tweets,” “feeds” or “followers.”

It’s time for marketers to stop using ROI as a buzzword for any marketing metric. You can’t measure and improve something if you don’t clearly define it.

How to Create High Performing Sweepstakes for Lead-Gen Efforts

OK, I know what you’re thinking … viable leads typically don’t come from sweepstakes and contests. And when not done correctly, that’s exactly right. However, just as any online direct response tactic, this one is no different. Over the years, sweepstakes marketing has become refined through testing and targeting. And since the boom in social media, sweepstakes are more popular than ever. But before you embark on this tactic, there are a few core concepts to know—as well as best practices.

OK, I know what you’re thinking … viable leads typically don’t come from sweepstakes and contests.

And when not done correctly, that’s exactly right.

However, just as any online direct response tactic, this one is no different. Over the years, sweepstakes marketing has become refined through testing and targeting. And since the boom in social media, sweepstakes are more popular than ever.

But before you embark on this tactic, there are a few core concepts to know—as well as best practices.

The Precursors

It’s important to get to know your list to help determine its value and how much you are willing to give away for a lead, such as:

  • What is your average conversion time (how long does it take someone to move from a lead to a buyer—30, 60, 90-plus days?)
  • What is the lifetime value (LTV) per buyer?
  • What is your average revenue per name?
  • What is your average cost per lead (CPL)?

Conversion Time. Monitor a group of new names (perhaps by campaign) who come on your file and see at what point, at what percent and for what dollar amount your leads convert to buyers. This will help you know how much and how long it takes a lead to convert. Let’s say you have a pay-per-click campaign and, in the first 30 days, 20 percent of the leads convert and the average unit sale is $50. This shows you your time threshold for getting a sale. You’ll know when to anticipate revenues and can manage your budget accordingly.

LTV. You take the total your buyers purchased: Let’s say over five years, this group collectively spent $100,000, and divide that amount by number of buyers (let’s say its 500). Your LTV is $200. This will show you the potential long-term opportunity for a buyer’s worth, as well as the loss (if the customer leaves your list).

Rev Per Name. This is more for the current buyers on your file not long term, as with LTV. Take the total your buyers spend at 30, 60 and 90 days; and at each time point, divide that amount by the number of buyers. So let’s say at 30 days, your newest names bring in collectively $10,000 and there are 1,000 buyers. That is a $10/rev per name. This will show you current buyer worth and your threshold for acquisition costs.

Cost Per Lead. When you’re doing an acquisition effort, how much does it cost you per name? Take the cost of the media buy and divide by the number of leads that came in. This will tell you how much you typically spend to bring in a new name. Ideally, you want to keep you cost per lead much lower than your revenue per name and LTV. I like to hover between $5 and $25 CPL. CPLs will be different by channel. However, if you bring in a lead at $50 and you know, based on your list performance, that name will spend $75 in the first 6 months, you can afford to take an initial loss.

The Offer

What are you going to give away? The value of the giveaway should be something that won’t be viewed as too good to be true by users as well, as one you can earn back (based on the aforementioned list criteria and in a certain time period). So knowing your giveaway threshold is important.

In addition to being realistic and appealing, the offer should also be relevant and interesting to your target prospect.

I’ve seen random sweepstakes offers on the Web, as I’m sure you have. One in particular, a publishing company, featured an offer: “Win a free iPad.”

This makes zero sense to me in so many ways …

Unless this publishing company is uploading an app on the iPad with a free online subscription to one of their publications, I don’t see the relevance for the end-user. This publisher will likely wind up with thousands of leads, but they will be unqualified, irrelevant people looking for a free electronic device and not in the other information products they offer.

Plus there’s an out-of-pocket cost for the product and shipping of the product.

This, in my opinion, is typical of the “old” sweepstakes offers where little strategy and direct response knowledge seemed to go into planning the campaign.

However, one website I discovered in my research for this article seems to hit the nail on the head and offer something synergistic to their leads, as well as qualifies the lead for future potential sales via cross-sell and upsell efforts.

Take skin care company, Dermagist. Their sweepstakes offer is for lead generation, touts a “$200 shopping spree,” and is featured on their website and Facebook page. The tactics they are using can be applied to most any industry.

Leads have to “register” by liking Dermagist’s Facebook page, as well as post on Dermagists’ Facebook page why they love the product. Winners are chosen monthly and given a promo code worth $200 toward anything in their store. No purchase is necessary.

What I Like …

The offer is ongoing, so it’s a continuity of new leads (email addresses) coming in on a monthly basis to help build the list and offset any attrition.

The prize is realistic, targeted and qualifies the recipient based on relevant interest—it’s appealing to those interested in skincare products and is a great way to get repeat and referral sales.

Leads have to “register” by liking Dermagist Facebook page, as well as post on their Facebook wall why they love the product. This strategy helps with social media engagement (boosting page “likes,” visibility and credibility), as well as product awareness.

I also liked that on the website’s sweepstakes registration page, last month’s winner’s name was posted. This helps reinforce contest legitimacy.

Location, Location, Location

Where you promote your sweepstakes is equally important for targeting and relevance.

There’s the obvious, such as having a banner ad, header content or interstitial on the website’s home page mentioning the promotion.

You can also promote it on your business’ Facebook page organically (through fan page timeline and wall posts), through apps, as well as through targeted ads and boosted posts, selecting audiences in the Newsfeed that are like-minded with your target customer.

Tabsite has a variety of Facebook-friendly apps for contests and sweepstakes (photos, trivia and more).

A word of caution: If you are promoting a sweepstakes on Facebook, make sure to follow its guidelines or your campaign may run the risk of getting shut down.

Promoting it organically with search engine marketing is another tactic, such as with free online press releases.

And, of course, if your budget allows, you can promote your sweepstakes through targeted media buys (banner ads, email list rental) and pay-per-click. These costs should be factored into the overall campaign effort and cost per lead.

So when you start thinking about your acquisition efforts and how sweepstakes may be used, know that through the evolution of the consumer and Internet marketing in general, this is not your father’s sweepstakes anymore.

Being a creative and strategic marketer will help you take this strategy to a whole new, high-performing level.

How to Maximize Your Lead Volume Within Your Allowable Cost per Lead

Many times marketers running lead generation programs shortchange their lead volume in order to maintain tight controls on their cost per lead. Their fear is that if they rollout media that tested at a cost per lead (CPL) that’s just equal to or slightly below their target CPL that a variation in response might put their overall CPL over the top. As a result, they roll out only those media properties that are performing below their target CPL.

Many times marketers running lead generation programs shortchange their lead volume in order to maintain tight controls on their cost per lead. Their fear is that if they roll out media that tested at a cost per lead (CPL) that’s just equal to or slightly below their target CPL that a variation in response might put their overall CPL over the top. As a result, they roll out only those media properties that are performing below their target CPL.

This conservative strategy ends up cheating you out of volume that could significantly increase your program’s total revenue and positively impact your ROI. The fact is that every well-constructed media test has its big winners as well as its big losers. The trick is to leverage the big winners in a way that allows you to include the “little losers” in the mix and still meet your overall target cost per lead.

With a few simple spreadsheet tricks, you can maximize your lead volume and still hit your target CPL by including media that actually generate higher lead costs than your target CPL! Think about it this way. If your target cost per lead is $15, for every $10 lead you get from a “big winner” media, you can accept a $20 lead from a “little loser.”

Let’s walk through the simple spreadsheet manipulations you need to manage this process.

Start out with your basic results spreadsheet like Table A that shows your media cost, responses, and cost per response for each media. For this example, we’ll look at a 500,000 impressions test (10 properties,
50,000 impressions each, with a roll-out potential of 15 million. The target CPL is $15.

#INLINE-CHART#

As you can see, the test yielded 700 responses at a cost of $11,425 or a total CPL of $16.32. But there are 7 out of 10 properties that are performing worse than the target CPL of $15.

The first thing you need to do is rank the results in ascending order of CPL using the Data Sort function, and you end up with Table B below. (Make sure you don’t include the total line in your sort).

#INLINE-CHART#

Here we see that properties H, B, and C are below the target of $15 per lead while all the others are higher. The combined roll-out quantity of these three properties is a disappointing 4,050,000 impressions out of the total potential roll-out quantity of 15 million. But let’s look at what the actual roll-out potential is when we leverage the “big winners” against the “little losers.”

To the spreadsheet that you sorted by ascending CPL, add columns for cumulative responses, cumulative cost and cumulative CPL. Table C, shows the formulas for calculating those.

#INLINE-CHART#

Looking at the results of this calculation in Table D, we get a better picture of the potential roll-out universe.

#INLINE-CHART#

If you look at the cumulative cost per lead column, you can see that taken together, 8 out of 10 media properties produce an aggregate cost per lead under $15. That leaves only properties E and F with their high CPLs out of the mix, creating a potential rollout of 12,250,000 impressions. (Note: If you decide to re-sort this spreadsheet do not include the cumulative results columns in the sort).

Now, some words of caution. Don’t roll all these marginal media out before retesting them in a larger quantity, say 250,000 impressions to make sure that you’re going to repeat your results. A test quantity of 50,000 impressions generating less than 100 responses does not create a high level of statistical confidence. So be especially careful with properties like A and I that have higher CPLs. You’ll also want to retest your “big winner” properties with a greater number of impressions to make sure the test results are not an aberration.

3 Online Recommendations for Small Business Direct Marketers

Many smaller companies who use direct mail don’t have a large staff to identify digital alternatives. This column is for the organization wondering what to do online when direct mail response is declining, costs are increasing, and inevitably, profits are shrinking. Today’s topic was triggered by

Many smaller companies who use direct mail don’t have a large staff to identify digital alternatives. This column is for the organization wondering what to do online when direct mail response is declining, costs are increasing, and inevitably, profits are shrinking. Today’s topic was triggered by a phone call from the new owner of a company we worked with a few years ago.

His challenge was typical of a lot of small business owners using direct mail: declining response rates, with lower profit, exacerbated by the fact that postage, once again, has recently gone up.

When we worked with the previous owner of this company a few years ago, we identified a more responsive direct mailing, built a new website, and got him started with a modest pay-per-click campaign. We wanted to test email, but the owner didn’t want to use email, so we didn’t. The outcome from these efforts was a combination of a better list; the capability for responders to complete a lead form on a new, search-engine-optimized website; and a PPC campaign that put them back in the black.

Fast forward about five years and direct mail response has declined yet again, while costs are up. The new owner wanted to rebrand his company with a different website. But in his attempt to save money, and having no clue what he was doing, the “new” website became a brand liability and all optimization was lost. And the pay-per-click campaign faltered because of the website switch.

So what to do? He called us for help.

In an instance like this, and in the interest of keeping a plan of action simple and as cost-effective as possible for the small business going at this alone, here are three initiatives that should be explored to keep things simple and cost-effective.

1. Website Review
Most small businesses have a website. But what is its purpose, and is it effective at achieving that? Ask someone to evaluate it for you who will understand what websites should do for a company. Get an audit. Invest the money to make it a stronger representation of your brand; create great content, videos, and don’t forget your all-important opt-in form to capture email addresses. Make sure it’s optimized for the search engines. And make sure you claim your local listing on the search engines if you’re a local company.

2. Manage Expectations if You Test Email to Prospects
Because email marketing costs less than direct mail, it’s natural to think you can divert all your efforts to email and achieve the same results. But that’s often not the case, especially when you’re prospecting and not emailing a customer list. Making email prospecting more challenging is that there is no established relationship between the marketer and recipient. This isn’t to say that email prospecting shouldn’t be used, but rather, run the numbers first to manage expectations (see “Crack the Email Prospecting Code” for more on this topic). If you’re going to use email, make sure you have a compelling, relevant landing page and opt-in form to begin nurture marketing with regular email or direct mail follow-up (more about nurture marketing in a future blog post).

3. Give Pay-Per-Click a Shot
PPC enables you to set a daily budget comfortable for you. It can be ramped up, or shut down, without a lot of cost exposure. But you need strong text copy, understand your keywords, and have a powerful landing page. There, someone who clicks will opt-in by asking for more information. You can add those individuals to your nurture marketing campaign.

Bottom line: If you’re looking for a quick and affordable way to reinvent or expand your direct marketing from exclusively direct mail to cross-media online efforts, these three initiatives are a good place to start.

Crack the Email Prospecting Code

Email marketing has become a vital tool for direct marketers. But if you want to expand your email reach by renting and emailing a permission-based email list, you need to understand the complete measurement process to maximize profitability. If you don’t thoughtfully run the numbers, especially when renting a list of unproven email addresses, your dream of profits can be quickly dashed.

Email marketing has become a vital tool for direct marketers. But if you want to expand your email reach by renting and emailing a permission-based email list, you need to understand the complete measurement process to maximize profitability. If you don’t thoughtfully run the numbers, especially when renting a list of unproven email addresses, your dream of profits can be quickly dashed.

A traditional direct marketer recognizes why running the numbers is essential, but new entrants into DM often don’t have the foundational knowledge of how to run the numbers. Their expectations are that when they send out tens of thousands—even millions—of emails, it’s going to automatically be profitable. Even with relatively inexpensive email lists, making a profit sending email to a rented list is far from assured.

But you can get to the profit side when you understand that long-term value from repeat future purchases turns the loss from the first purchase into future profit. By understanding the long-term value of a customer, you know how much you can spend (or invest) to acquire a new customer.

It’s vital to understand how to calculate allowable marketing costs and how to create a long-term value model (learn more in my Four-Part Series on Marketing Costs here at Target Marketing by following the links). An allowable marketing cost is simply the remaining portion of a sales dollar after cost of goods, fulfillment, overhead and profit objectives are allocated to their respective budget line items.

Increasing (or reducing) your allowable marketing cost will depend on how you view long-term value. That is, how many times, and at what average order, would you expect a newly acquired customer to purchase from you over a given period of time into the future (perhaps it is six months, maybe even a year).

The table accompanying this blog gives a couple of scenarios for B-to-C and B-to-B examples. In the B-to-C scenarios, we assume the allowable marketing cost to acquire a new customer to be $50. Based on the assumption that the email costs $70 per thousand for a permission-based email, and a clickthrough (based on emails delivered) of 0.8 percent, or 8 clicks, then 1.4 of those clicks (or 18 percent) must convert to sales. Or, if the click-through rate is 0.5 percent of emails delivered, then the conversion must be 28 percent. B-to-B examples are shown because the cost of lists and allowable marketing costs are usually higher than B-to-C.

When you identify the conversion percentage required to break-even, you have a benchmark. Then apply a test of reasonableness to determine if you should move forward with your test. A B-to-C conversion of 18 percent or 28 percent may be achievable, but it could be quite optimistic.

Also, remember there are several variables that will go into the email prospecting effort that impact your results. The quality of the list, from line, subject line, messaging, landing page creative, offer and more all factor into the overall performance of the email marketing effort.

When you get someone to your landing page, it’s smart to invite the individual to opt-in to your email list. Give them something free and of value so they will feel comfortable giving you their email address. Then you can email future offers to them without the cost of email prospecting.

If you decide to use email prospecting, remember these points:

  1. You probably won’t make money in email prospecting (if you do, you’re the exception).
  2. The email list you rent needs to be pre-qualified and, of course, CAN SPAM compliant.
  3. Email tends to work better the more times you email someone. Open rates tend to improve with appropriate frequency.
  4. Don’t forget: your most important objective might not be to sell something in the first effort, but rather, to build an opt-in email list that you can call your own.

B-to-C Scenario 1

B-to-C Scenario 2

B-to-B Scenario 1

B-to-B Scenario 2

Permission-Based Email Quantity

1,000

1,000

1,000

1,000

Cost Per Thousand

$70.00

$70.00

$120.00

$120.00

Allowable Marketing Cost/Buyer

$50.00

$50.00

$250.00

$250.00

Open Rate

8%

5%

8%

5%

Click-Through Rate/Delivered Emails

0.80%

0.50%

0.80%

0.50%

Number of Opens

80

50

80

50

Number of Click-Thrus to Landing Page

8

5

8

5

No. Conversions Required

1.4

1.4

0.5

0.5

% Conversion Required

18%

28%

6%

10%

Don’t Get Trashed — Is Recycling Discarded Mail Profitable? — Part II

In our previous post of “Marketing Sustainably,” we introduced an expert discussion on whether or not recycling collection of discarded mail, catalogs, printed communications and paper packaging is profitable, and why this matters is an important business consideration for the direct marketing field. In this post, we continue and conclude the discussion with our two experts, Monica Garvey, director of sustainability, Verso Paper, and Meta Brophy, director of procurement operations, Consumer Reports.

In our previous post of “Marketing Sustainably,we introduced an expert discussion on whether or not recycling collection of discarded mail, catalogs, printed communications and paper packaging is profitable, and why this matters is an important business consideration for the direct marketing field.

In this post, we continue and conclude the discussion with our two experts, Monica Garvey, director of sustainability, Verso Paper, and Meta Brophy, director of procurement operations, Consumer Reports. The conversation is based on a Town Square presentation that took place at the Direct Marketing Association’s recent DMA2012 annual conference.

Chet Dalzell: If much of the recovered fiber goes overseas, what’s the benefit to my company or organization in supporting recycling in North America?

Monica Garvey: The benefit—companies can promote that they support the use of recycled paper because they believe that recovered fiber is a valuable resource that can supplement virgin fiber. Recycling extends the life of a valuable natural resource, and contributes to a company’s socially responsible positioning. While it’s true that the less fiber supply there is locally, the higher the cost for the products made from that recovered fiber domestically, it’s still important to encourage recycling collection. Because recovered fiber is a global commodity, it is subject to demand-and-supply price fluctuations. If demand should drop overseas, and prices moderate, there may be greater supply at more moderate prices here at home, helping North American manufacturers; however, this is very unlikely. RISI, the leading information provider for the global forest products industry, projects that over the next five years, world recovered paper demand will continue to grow aggressively from fiber-poor regions such as China and India. Demand will run up against limited supply of recovered paper in the U.S. and other parts of the developed world and create a growing shortage of recovered paper worldwide.

CD: Is there a way to guarantee that recovered fiber stays at home (in the United States, for example)?

Meta Brophy: Yes! Special partnerships and programs exist that collect paper at local facilities and use the fiber domestically, allocating the recovered paper for specific use. ReMag, for example, is a private firm that places kiosks at local collection points—retailers, supermarket chains—where consumers can drop their catalogs, magazines and other papers and receive discounts, coupons and retailer promotions in exchange. These collections ensure a quality supply of recovered fiber for specific manufacturing uses. It’s a win-win for all stakeholders involved.

I recommend mailers use the DMA “Recycle Please” logo and participate in programs such as ReMag to encourage more consumers to recycle, and to increase the convenience and ease of recycling.

CD: What’s the harm of landfilling discarded paper—there’s plenty of landfill space out there, right?

MG: Landfill costs vary significantly around the country—depending on hauling distances, and the costs involved in operating landfills. In addition, there are also environmental costs. By diverting usable fiber from landfills, we not only extend the useful life of a valuable raw material, but also reduce greenhouse gas emissions (methane) that result when landfilled paper products degrade over time. There are also greenhouse gases that are released from hauling post-consumer waste. While carbon emissions may not yet be assessed, taxed or regulated in the United States, many national and global brands already participate in strategies to calculate and reduce their carbon emissions, and their corporate owners may participate in carbon trading regimes.

CD: You’ve brought up regulation, Monica. I’ve heard of “Extended Producer Responsibility” (EPR) legislation. Does EPR extend to direct marketers in any way?

MG: EPR refers to policy intended to shift responsibility for the end-of-life of products and/or packaging from the municipality to the manufacturer/brand owner. It can be expressed at a state level via specific product legislation, framework legislation, governor’s directive, or a solid waste management plan. EPR has begun to appear in proposals at the state level in the United States. EPR, for better or worse, recognizes that there are costs associated with waste management on all levels—not just landfilling, but waste-to-energy, recycling collection and even reuse.

These waste management costs currently are paid for in our taxes, but governments are looking to divert such costs so that they are paid for by those who actually make and use scrutinized products. Thus EPR can result in increased costs, were states to enact such regulation on particular products such as paper, packaging and electronic and computer equipment. Greatest pressure to enact EPR most likely focuses on products where end-of-life disposition involves hazardous materials where recycling and return programs may make only a negligible difference. Many will state that the natural fibers in paper along with the extremely high recovery rate of 67 percent makes paper a poor choice for inclusion in any state EPR legislation. That is also why the more we support the efficiency and effectiveness of existing recycling collection programs, the less pressure there may be to enact EPR regulations directly. It will likely vary state to state where specific concerns and challenges may exist.

CD: Does the public really care if this material gets recycled? Do they participate in recycling programs?

MB: Yes, they do. Even a public that’s skeptical of “greenwashing”—environmental claims that are suspect, unsubstantiated or less than credible—participates in recycling collection in greater numbers. Both EPA and American Forest & Paper Association data tell us the amount of paper collected is now well more than half of total paper produced, and still growing—despite the recent recession and continued economic uncertainty. Recycling collection programs at the hometown level are politically popular, too—people like to take actions that they believe can make a difference. And as long as the costs of landfilling exceed the costs or possible revenue gain of recycling, it’s good for the taxpayer, too.

CD: At the end of the day, what’s in recycling for my brand, and the direct marketing business overall?

MB: I see at least three direct benefits—and nearly no downside. First, a brand’s image benefits when it embraces social responsibility as an objective. Second, being a responsible steward of natural resources, and promoting environmental performance in a way that avoids running afoul of the Federal Trade Commission’s new Green Guides environmental claims—positions a brand well in practice and public perception. And, third, and I see this firsthand in my own organization, both the employee base and the supply chain are more deeply engaged and motivated as a result, too. Certainly, in the direct marketing business overall, there are similar gains—and I’m excited that the DMA has embraced this goal for our marketing discipline.