In my last post, I defined cost per lead (CPL), cost per sale (CPS), and allowable cost per sale (ACPS) in relation to your direct marketing budget and mail quantities. That being said, effective marketing strategy is not just about these costs, but how you use that information to inform future campaigns and measurably improve the ROI of your marketing efforts. These four simple steps will help you and your team use this data to your advantage.
Step 1 – Agree on the Allowable Cost Per Sale
Your company must agree on how much your average sale is worth to the enterprise and how much the company is willing to pay for a new sale. This isn’t meant to be as philosophical as it sounds—think about it objectively and evaluate your average customer value, and think about how much of that profit you’re willing to spend to get the customer in the door.
Keep in mind that the ACPS should include all marketing costs such as creative, production, media, data costs, offer expenses, and other direct costs for your campaigns.
Step 2 – Get a Handle on Your Allowable Cost Per Lead
While it’s not acceptable for marketers to generate low quality leads that do not convert to a sale, beware. It’s also possible to over-qualify your leads, thus reducing your overall sales volume and risking coming in below plan.
You would use a different allowable cost per lead (ACPL) for different channels including online, direct mail, direct response broadcast, outbound telemarketing, and so forth. Why? Because the conversion rates vary from one channel to the next. The constant is your CPS. Again, you are seeking an ACPS as an average.
Many factors strongly influence your ability to achieve your ACPS. Some are within your control and others are not. Accurate targeting, strong offers, seasonality, competitive environment, and unforeseen major events all can improve or reduce your conversion rate. That’s why understanding how to drive your business using both the CPL and the CPS is so important to making your campaigns as successful as they can be.
Step 3 – Treat Your Leads like Gold—Even if They Don’t Convert on the First Effort
Bear in mind that you may not be able to convert a large number of your leads on the first pass. Set those who didn’t convert from your first effort aside as your secondary priority targets, keeping customers and upselling them as the first. (Remember, it costs more to gain a new customer than it does to retain an existing customer, so you’ll benefit from focusing on your current customer list.)
Keep in mind that as leads age, they become less responsive. An effective marketing strategy requires testing the contact frequency that’s driving your budget based on your ACPS. Make sure that the cost of continuing communication doesn’t outweigh the benefits of gaining responses.
Step 4 – Use Your Allowable Cost Per Sale to Help Set Your Annual Budget
Once you know your ACPS, you are in a good position to support your case for the marketing budget. You know that it costs X dollars to acquire X number of new customers. Develop your total marketing budget BEFORE even considering your creative or channel strategies. It’s like knowing how much you can spend on a car before you start taking test drives—you do not want to waste time developing plans you can’t afford.
The key to all of this is that you are quantifying success BEFORE you embark on any marketing campaign and ensuring your team is all on the same page. In this way, it’s easier to gauge what success looks like and how to qualify decisions you make.
IWCO Direct is ready to help to you incorporate ACPS to improve the performance of your marketing program. If you’re looking for effective direct marketing strategies that measurably improve the ROI of your marketing budget reach out to me or your IWCO Direct account team.
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