Don't Sell Yourself Short On ROI

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The two buzzwords for retailers in your USA market are "Return on Investment" (ROI) and -"Measurement". In other words, once you have defined your expectations (which in most cases we fail to do) and objectives, how will you measure the return? Why do the Kmarts of the world find themselves relying on newspaper with freestanding inserts and direct mail, and not Radio? Simple: It takes only one person to come in waving that newspaper ad (even if it's only one person) and the reasoning becomes, "Newspaper must be working!"

Why not Radio- Our biggest weakness is how we, as an industry, sell our medium. Let's start with ROI. What is a realistic ROI? Is it 100 percent? 200 percent? maybe 300 percent? I guarantee that, if you could give back that kind of money on their investment, you would be sold out,  day in and day out, 52 weeks a year! A good standard ROI is around 15-20 percent - a little higher than if you put your money in Wall Street over the past five years (average ROI 8-15 percent) and more than a CD at your local bank (1-3 percent).

Imagine going to any banker and telling him or her that you have someone who will give you a 20-percent return on your money. How would that loan officer respond? Probably along the lines of, "I'd like some of that action." Objectives and expectations must be realistic - and that's where we fall short in selling our medium.

THESE NINE STEPS WILL HELP DEFINE ROI FOR YOUR CLIENTS:
1) Advertising Investment $_______________
2) Plus _____% ROI: $___________________
3) = Net ROI: $_________________________
4) Divide by Profit Margin %______________
5) = Gross Return _______________________
6) Divide by Average Sale $________________
7) = No. of Sales Needed _________________
8) Divide by Closing Ratio %______________
9) = Total No. of Prospects Needed to be Generated
By Schedule _____________________________

Here are a couple rules to remember when defining your ROI for your clients. If the profit margin is very small and the average ticket is low, you might find yourself having to bring in an exorbitant amount of customers in order to make the investment work. One retailer with whom I worked had a pool cleaning service. His fee was $100 for an initial visit to clean a pool, plus $21 per month. Average retention per client was five years. Is this a $100 average sale? No - each new customer was worth $1,360 ($100 first-time call plus $21 X 60 months comes to $1,360 for average sale). If you understand retail - and you should - you can easily figure ROI and what a customer is worth.

An interesting note: I just returned from a trip to New Zealand. Some stations there actually "guarantee" the anticipated ROI for the client or they rerun the schedule for free. They can do this only if they dig deeply enough into their clients' businesses.

One more thing: You must make sure the prospective clients can deliver the closing ratio once you bring in the bodies/ calls/response. You can do this only if you are a partner in their businesses!