Measuring the ROI of database marketing
Database marketing is a simple and cost-effective way to nurture leads and boost sales while efficiently managing your time. Its immediacy and capacity for personalisation make it a great tool for testing, learning as well as revenue generating.
Database marketing allows you to manage members, events and contacts while at the same time keeping in touch with customer feedback and behaviour. So how do you know if it’s working?
The great thing about database marketing is that everything is measurable, from open rates and clickthroughs to sales. The difficulty, however, can be in knowing what to measure. Most small businesses have limited time to spend on reporting, so efficiency is key.
Establish your goals
From the outset, be clear about what you want from your database marketing campaign. Your goals might include increasing sales, generating leads, encourage referrals or getting a booking for an event.
What to measure
Once you’ve identified the primary and secondary goals you want to measure, identify the performance indicators you’ll use to gauge progress towards those goals. This could be in the form of volume of leads generated, conversion rates, average sale value, number of new purchases, revenue and net profit.
Applying the ROI formula
There are many variations to calculating return on investment, depending how complex and comprehensive you want to be. The basic formula for calculating ROI consists of gain from investment, minus cost of investment, divided by cost of investment.
ROI = (net profit – cost of investment) / cost of investment
For example, if you made $1000 from a campaign that cost $500, that’s 100 per cent ROI.
ROI = ($1000 - $500) / 500
ROI = 1
Alternatively, to calculate ROI based on revenue you can use the formula:
ROI = (campaign revenue x profit margin) / cost of campaign
These formulas will give you the financial return on your investment. However, more broadly you can compare metrics like open rates, clickthroughs, conversion rates and cost of customer acquisition to work out how well your database marketing campaign is working for you.
Painting the bigger picture
It’s important to take larger industry and seasonal events into account. Customer interaction may have slowed in June, but it might be because everyone was focusing on the end of financial year.Taking external events into consideration can help you plan out future campaigns.
Don’t become overwhelmed with unnecessary complexity. Make a shortlist of items that are important to measure then track, respond and stay nimble. The most important thing to remember is to put your findings to work – refine and develop future database marketing campaigns based on your results. Each campaign you run gives you better and more accurate statistics about your target market.