I have always been amazed that business executives in general and marketers in particular have managed to avoid measuring every marketing initiative. Sure, many companies measure the effectiveness of some below the line activities but in my view, marketing is every interaction between a company and its potential customers. That is literally 10-15 interactions in most businesses, and the ROI of very few of these is measured.

That is pretty pathetic and a serious indictment of the marketing profession. In such a competitive business environment it is critical that we know the ROI of every investment and every initiative taken by a company. Technology certainly gives you the tools to do so.

Measuring ROI on each marketing activity is critical to proving effectiveness, and competing inside your business for scarce resources. 63% of chief marketing officers think ROI will be the primary measure of their effectiveness by 2015.

But what was profoundly revealing was that 56% of CMOs, said they feel inadequately prepared to manage ROI. That means the pressure is on to calculate ROI in ways that yield accurate, supportable numbers, particularly pertaining to marketing expenditures.

Measuring ROI effectively will help marketers add value to their organizations and attract their fair share of resources.

The math is basic, but the components aren’t always easy to figure out. Any solid ROI calculation should measure revenue generated by the marketing campaign, profit margin on the items sold, and campaign and marketing-related expenses. Profit margin can be difficult for organizations to quantify because it incorporates the cost of operations, but it’s a necessary ingredient to calculate ROI accurately.

Keep in mind that to be able to quantify revenue generated by the marketing campaign, those campaigns need to have been designed to capture responses in the form of revenue from sales.

The simplest, but highly inaccurate way of measuring the return on Investment is simply the profit divided by the total cost of the campaign.

This simple ROI calculation is a solid metric for getting a quick indication of campaign performance. This enables you to compare campaigns or month by month performance.

That formula is also useful for measuring pilot marketing campaigns, but you must take into account that they likely have one off extraordinary expenses that wouldn’t apply once project efficiencies are captured in a full-blown campaign.

Though this simple ROI calculation is a good starting point and it keeps things reasonably simple, it lacks several very important enhancements. It often doesn’t factor in all of the costs associated with the campaign, and it doesn’t consider the impact of control groups. Both of those are required to evaluate the actual revenue generated by a campaign.

One of the reasons that few companies have marketing people on their board is because they are not seen to be as fiscally responsible as other departments in the company. Marketers will need to take a more advanced approach to ROI calculation and be more financially analytical if they want to be considered in the same league as the other departments in the company—and if they want to be evaluated by similar financial measures.

While the jury is still out on how detailed these ROI calculations need to be, there is consensus that it needs to be a lot more detailed and extensive than it is now. Some marketers hold the view that advanced ROI calculations should include all of the costs associated with having a marketing department: salaries, benefits, office space, computers, software, marketing’s share of the bills (heat, electricity, etc.), plus all of the direct campaign costs. All of those costs added together would give you the “cost of campaign” figure in the formula.

Also important in advanced approaches to calculating ROI is to factor in dollars generated and purchases generated from both the target group and a control group. Doing so will help you answer important questions, such as whether the average purchase dollar amount was higher from the target group or the control group… or whether the target group purchased at a higher rate than the control group.

Another view is that this also is too simplistic as factors such as competition responses to your initiatives need to be taken into account. Also in FMCG’s for example you would need to discount retailer incentives as you would likely have to pay them anyway. Listing fees are usually a one off that would also have to be discounted.

So, there is debate about the way to calculate ROI so that you get the most accurate result. I think this will vary depending on the industry and in my view a calculation to within a percent or two is close enough.

Just remember a couple of things. Include all of the costs involved. Too often we underestimate the real cost of goods and the actual cost of a promotion or campaign. Too often we ignore the true cost of the campaign which can make a hell of a difference to the ROI.

The other thing to take into account is the sales you would have received if you did no marketing. It would not be zero, so your ROI needs to count only the incremental increase in sales generated by the promotion.

The best part is that we are now at least beginning to take it seriously. Maybe marketers can regain their seat at the boardroom table.

Congratulations to the Ovations team for your 25th year in business. Click on the link below to view Bob Pritchard  in action

Bob Pritchard Speaking

Our second email is from Alistair Watson from Hampstead  near London.

Alistair says…………… Dear Bob, although you are obviously Australian most of your examples and interviews are American. We have some very talented people in the UK, can you feature some of them occasionally. Also, you were speaking a couple of weeks ago about Adding Value to your customers. I own a travel agency and out margins per booking are very small. How can I add value to my customers. Keep up the good work, I appreciate your advice, Regards Alistair.

Thank you Alistair for your email. Yes, I am Australian, although I have lived in the US for 25 years and I actually have had two English guests in the last 8 weeks so the UK is actually batting above average. As far as adding value to your clients……. You need to put yourself in your client’s shoes, think like they do. You say you are in the travel business. Firstly, when someone buys a ticket from you, what do you do? Most travel people take their money and give them their ticket. This is exactly what every other travel agent does. Nothing at all to differentiate you from the rest. So what can you do that is different?

How about if they buy a ticket to Greece, you give them some Greek “what to see” brochures, maybe you give them a photo copy of the section on Greece in the “Lonely Planet” travel book. How about giving them a cheap disposable camera and have them send in their best photos with a chance to win a prize at the end of the month……. Maybe you give them a CD by a Greek Superstar like Nana Mouskouri or Demis Rousos.

Another great added value is a travel adaptor that works in Greece. There is nothing worse than going to a country and not being able to plug in your phone, your computer or a hairdryer.

All of these added value items are cheap. Make sure you have your logo, name, phone number and email address on the item. Clients will love you for it.

More importantly, give them a call, drop them an email or send them a postcard when they return, asking if everything was OK, how can we improve our service for you next time?

But, right now let’s talk about a few of the challenges facing small business today. I’m sure a lot of you can relate to some of these issues. One question that keeps coming up is “How do I get and retain customers?” This is often raised in relation to the increasing   difficulty in getting results from advertising.

When it comes to attracting and retaining customers, two things are important to realize. Firstly it is very expensive to attract a new customer. Advertising is expensive and unless you really know what you are doing, it is highly inefficient. History has proven that it is between 15 and 50 times more expensive to get a new customer than it is to retain an existing one.

Secondly, research shows that 62% of customers across all sorts of industries do not repurchase from the same company they bought from last time. So 6 out of 10 people that come into your store or business got what they were after and received acceptable service, never came back. Most business people do not understand the importance of these facts.

Most businesses have a budget for advertising but very few have a budget for customer retention, yet it is 15 times more expensive to get a new client than retain an old one. If you put just 50% of the money you invest in advertising into customer retention, you would make a fortune. Why? Because existing customers cost next to nothing to get in the door, their average spend is higher, they do not have to be enticed with discounts, your return on investment is significantly increased and you save a lot of money on advertising.

Businesses who are successful today do not satisfy customers, because satisfying customers does not build your business, it is a recipe for going out of business. Today, you have to knock the customer’s socks off.

They need to conclude the transaction with you and say “WOW” that was a great experience. There are a lot of ways to do this, but you really have to “think” about it. Too many people today are spending all their time working in their business and not on their business.

So, going back to the original question, “how do I get and retain customers” it is really easy….. focus firstly on retaining existing customers, not attracting new ones.

The second question I hear a lot is along the lines of “I’m great at what I do, but not so great at bookwork, creating the right structure to save taxes and I really don’t know what I’m doing when it comes to marketing. I design my own advertising but it doesn’t seem to work and the list goes on.

But I’m too small, or I can’t affort to get experienced advisors, or hire an advertising agency. These are major problems because the reality is that while having a great product or service is important, running the business sucessfully is much more important.

The world is full of great products and service companies that have gone out of business because they didn’t run the business well or didn’t market their business well. There are also millions of businesses out there that have ordinary, even lousy products but run a great business with great advertising and are very profitable.

Excellent advisors are more important than a great product, but select your advisors carefully. A lot of people become consultants because they are hopeless at running a business, so check out their credentials before you hire them. The good ones might cost twice as much and that might appear to be important initially, but the good ones produce great results.

There is also no need to spend a fortune on consultants. I work with some of the best in the world in a business called Marketforce One Business Strategies where for just $2000 per month you can get advice by skype on any aspect of your business any time you want it. And you can do it for just one month if you like. If you would like more information just send me an email at bob@bobpritchard.com and I will be pleased to get back to you.

Another comment I hear regularly is that it is hard in business right now because of the state of the economy. What bullshit is that? The economy overall my be sluggish but this week there is a trillion dollars circulating around in America. How much do you want? Forget about the overall economy. If you sell widgets and you need to sell 100 a month to make a good profit, that’s three a day. If there was 100 people buying 100 widgets each before the downturn, there is still 80 eople buying 80 widgets each after the downturn. Just focus on them. There is still a huge amount of business being done every single day. You might have to look  little harder, you may have to work a little smarter, but the business is out there. If you cut your staff, cut your marketing and play it safe, I can guarantee you will go out of business.

Now is the time to get out there, get amongst it. There are more millionaires made during recessions than at any other time.

It is the time for you to use expertise, and use creativity to take advantage of the vacuume created by companies who cut back and play it safe. Also be careful about playing into the “times are tough, I need to discount to get sales’ trap. A recent Citibank study showed that 70% of all companies that began discounting, went out of business within 12 months.

If you cost of goods is $50.00 and you sell your goods for $100.00 many businesses think their profit is $50.00. But….. it could be costing you $20.00 for rent and overheads, taxes, staff holidays etc. So….. if you offer a 25% discount, you are not still making $25.00, you are actually losing $5.00 on every sale. Before you start discounting, ensure that you understand the  cost of running your business and of each item, including the cost of holding inventory, credit card costs and so on. This is why many businesses need outside expertise.

Finally before I get to my first guest, I would like to talk with you about the need for mentors. All of the really clever people I know have people around them that they ask for advice. Successful people like to help other people become successful.

Our second email is from Margaret Hayes who has a hairdressing salon in Amherst, New York.

Margaret writes…….. great show Bob, very informative. I also bought your book, and for a small business it is really easy to follow. I am enjoying it.

You have a great chapter on ‘added value’, but I’m still not sure how to add value for clients that come to my salon. Can you give me a few pointers on what I can do? It would be great if we could have someone like you to come and do a workshop here. Do you do that? The experts don’t seem to come to smaller towns to do workshops and we need your sort of guidance so I’m sure you would get a huge turnout.

OK Margaret, let’s look at the added value issue first. There are really dozens of things you can do. You could get customers to call on approach to the salon and get a junior to park their car for them, or you could make appointments to go to their home or business if they are unable to get to the salon.

You need to make sure you have a database of all your clients with details of their birthdays and anniversaries so you can send them a special offer on their special day as an add on to what they normally have done, buy a coffee machine and give them a cappuccino or a latte when they sit down, or give them a couple of bonus movie tickets. You could also invite regular customers to come in on a specific day when they can get their normal appointment as well as having their nails done free as a bonus. You can get a nail person to come to the salon for a day at a pretty good rate. People love to feel they are special.

Margaret, they are just some of the things off the top of my head that you could do.

My first email today is from John Roberts in Phoenix Arizona. John, that is just down the road from our studios in Tempe.

John writes….. Dear Bob, I listen each week because I get so much useful information from your program. My problem is that I work hard and long hours yet always have so much still to do, yet little of it seems to be productive in making money. What am I doing wrong?

John, it is very difficult to really focus on what it is that makes you a profit, there are always a lot of distractions. Two small things that will help.

Firstly, focus on things that are important to making money and the growth of your business, leave the other stuff until you have time. You will find it isn’t really important.

Secondly, at the end of each day, write down a list of the things you did today that actually made you money…….  You will be surprised at how often you have busted your ass all day but really not made any money.

Another mistake businesses make is that they fail to determine specifically who their market is, where they are, and what their wants and needs are. Ninety percent of businesses never precisely determine who their market is, or what their geographic pockets are, or what the customer’s desires, needs, wants, and passions are. This is a grave mistake that will not only cost you money but will screw your business.

The successful marketer can tell you precisely who they are marketing to, where they are, the most effective way to reach them, and what they want in a product or service. They can tell you the age of their best prospect, who this person is, where this person is, educational and income levels and other critical information.

You must know who, they are then you can find out the why they will buy, and how to reach them. Why does your customer buy from you? What do your customers want or need most in the products or services you offer? Think about it…How can you expect to adequately fill someone’s needs if you never take the time to get involved and understand them?  Yet few companies ever bother to seek to meet their customer’s needs. Companies that are a success with their marketing understand their customer’s needs and attempt to satisfy those needs better than the competition.

If you want to own your market, find out what your customers real wants   are. Discover their desires. Search out their passions and needs.    Once you have this information you will be armed to corner your market. If you don’t start buying the ‘work wanted’ ads, you will need them very soon.

But, right now let’s talk about a couple of the mistakes that companies make that are simple but could also cost them their business.

So many businesses focus on themselves, and not on the prospects and customer’s needs!  That is who the ads are supposed to be appealing to. Why isn’t this obvious? Look through your yellow pages or today’s newspaper ads. Now answer this question: Are most of the ads telling you what benefits you get if you become a customer? Or are the ads telling you about the Advertiser, where they are, how wonderful they are, what they do, how great their quality is, how great their service is, and all about them? Customers don’t care about you, they only care about themselves.  95% of  ads today are totally focused on the business and not on what the business can do for YOU, the prospect!

Take a look at the ads on TV, and listen to the radio. You will find the same thing happening there, consistently, every day. This type of selfish advertising falls under the wasteful category of brand advertising. Brand advertising in my view, produces absolutely no benefit whatsoever. The advertising agencies will tell you that it produces deferred results. That is rubbish. Branding is worth zip in today’s market place. Brand equity is all that counts and this type of advertising does nothing for Brand Equity.

Why? Because brand equity is all about you, the customer, not them. At worst, brand advertising is ineffective, unproductive, and a wasteful expense that accomplish no profitable purpose whatsoever. Brand advertising tells you how great the company is, or how old and stable they are, or some other bullshit that no one cares about. This idiocy kills most of your marketing effectiveness and budget. From brochures to flyers, and sales letters to advertisements, your marketing message should let your prospects know that you are concerned ONLY WITH WHAT THEY WANT!

Anything about you, should always come last. Your customers, should always come first. Any marketing documents you create should start by  focusing on  the  prospects wants. Every sentence should show that you understand the prospects wants.  Until your marketing efforts  focus on  the  prospects  wants,  your marketing will fail. This marketing failure will be followed closely by your company’s failure.

As I said last week excellent advisors and mentors, to help you avoid these mistakes are more important than a great product, but select your advisors carefully. A lot of people become consultants because they are hopeless at running a business, so check out their credentials before you hire them. The good consultants might cost twice as much and that might appear to be important initially, but the good ones produce great results. For one client we once increased inbound calls from 70 a month to 3500 a month with the exact same advertising budget.

The largest US corporations are using the recession as an opportunity to restructure and become more efficient. In these times inefficient and uncompetitive businesses are eliminated, costs are lowered and the business is poised to grow vigorously.

However, there are many parts of the economy that will take a while to recover.

Look at the facts:

FACT 1: Labor costs are down 2.3%, manufacturing productivity rose 5%.

FACT 2:  Companies are refinancing debt at a lower rate. As a result corporate balance sheets have risen by 28%.

FACT 3:  Corporate profits are close to an all time high.

FACT 4;   Corporate cash reserves are more than $2 trillion, a 50 year high, meaning companies can really drive growth, expansion and acquisition……. as long as Europe doesn’t fall apart.  The future for the country looks great. Unfortunately this will not, in the short term help  everyone as with the restructure and increased efficiencies many types of jobs will disappear. There will need to be significant retraining of people, but we will be a more powerful more nimble America.

Then there is the Kodak bankruptcy. This is what happens if you don’t continue to innovate, if you don’t stay ahead of the curve. Although Kodak dominated the film market they didn’t continue to innovate and the digital revolution blew them away.

Remember, now is the time to be successful, there are more millionaires made during a recession than at any other time. Take advantage of these times, get committed, focus on your business, be innovative, take time to learn what you need to do to make your business successful. Take on a mentor, anything that will help you to move forward and succeed.

America has always been about initiative and innovation, about hard work and commitment. That is what made America great. This is the one country where anything is possible. So let’s pull together to put this recession behind us, and the political divide in this country.

Our second email is from Alison Toomey who has a graphics studio near Chicago.

Alison writes……..Thanks for your show, it is a great help to small businesses like me who can’t afford to hire the expertise you provide. I also bought your book, and I’m loving it.

Your interview with Rick, the graphic artist last week was terrific. We are often forgotten, or at least, seldom acknowledged part of the advertising industry, yet I believe we are very important. Rick is very well established with global clients but for someone small like I am, how do I get my name out there to get work. Thanks for your help Bob.

Alison, that is a very common question. The first thing to do is to make sure that all the businesses in your area, particularly the advertising agencies and PR companies have your portfolio. Then…… I would phone them all and speak personally to the most appropriate person. Because businesses are now becoming global you should not confine your canvassing to just your immediate area. For example, Rick the Graphic Artist I am using for one of my UK clients is from Chicago and I tracked him down in New Zealand and I am in Los Angeles. How global is that?

Another avenue you should consider is elance. For those of you who do not know elance, it is a site where people go to find people to get work done. For example, if you want to write a book about elephants, you list it on elance and you will get 50 people who will write the book on elephants for you….. and it is remarkably inexpensive.

I have frequently used elance to find a number of services such as graphic artists, and I detail what I require and I usually got 30-50 submissions from people worldwide who also send me their portfolios.

You should certainly list yourself on elance, you could get a lot of work from it.