Every Campaign Should Do a 4-to-1 Ratio
This article was originally published in the July 2010 edition of Channel Crossing: DRTV.
Talk about the good old days in our industry, and eventually someone mentions how campaigns used to delivery 4-to-1 rations (four times the amount of revenue than the cost of media) or better, that every campaign back then was a hit and how much easier it was to have a success in direct response. Well, things have changed. Today, we talk about fragmentation of media, the consumer’s numbness to the clutter of direct response offers, the need to go to retail quickly, the increasing cost of media, the increasing cost of goods, telemarketing costs, shipping costs–the list goes on.
Crunching the Numbers
In the current direct response environment, generating impressive ratios on initial product sales has, in fact, become tougher to do, but what we do have today that we didn’t have in the good old days is the technology to help us achieve efficiencies that we have never seen before. Depending on your margins, most direct response items in the $29-$39 retail price range require roughly a 1.4 to 1.7 ratio of dollars generated over media cost to break even, and generating the calls/visits and orders to achieve those ratios has become increasingly difficult.
Enter technological efficiencies. Let’s say, for instance, that a campaign that breaks even at 1.4 ratio generates a 1.2 ratio after months of testing. Does that mean it’s a failed campaign, new worth rolling out? Should we be on the next gadget? Absolutely not! Today’s technology allows us to manage data in ways that can create incredibly successful campaigns from what would have been previously been considered a failure. Take the 1.2-ratio campaign and assume it’s a set of kitchen knives. Now imagine the consumer data captures from this campaign being monetized over a period of time–say the next 12 months, by providing those newly acquired customers with offers for some of the marketer’s other items like pasta pots, blenders, countertop ovens or whatever makes sense for the demographic profile of your newly acquired consumer data. It’s called re-marketing and it maximizes the Lifetime Value of your customers over a period of time with no media cost. That’s correct, no media cost.
Re-marketing and data management are increasingly more critical today for our industry.
To clarify, let’s take the media campaign for the kitchen knives item and look at a specific airing that generated a .9 ratio (media cost $1,000, revenue generated $900). When you have a system that can pinpoint that actual individuals who purchased that product from that airing and you can track how many additional items and how much additional revenue those individuals generated by responding to re-marketing offers over the 12 months following that initial purchase, you can see that the airing that generated a .9 ratio initially may have been one of the most profitable airings of the campaign when you calculate in the Lifetime Value of the acquired customers. That one airing may have resulted in a 4-to-1 ratio over that period of time.
Re-marketing and data management are increasingly more critical today for our industry. Utilizing front-end media data, backend transaction data and re-marketing technology that allows you to communicate with your newly acquired customers and generate the maximum Lifetime Value from your campaigns will be the key to achieving ratios and profit margins our industry has never seen before… not even in the good old days.