Return on Interactive Investment

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Return on Interactive Investment


Sep 11, 2009 by Mark Maier

Above is the first time the LPG audience has seen the first truly comprehensive Return On Interactive Investment formula.  It took months in development, several formula's, and field testing with actual clients at Castanet.net and here's some actual case studies to see it in action from Chris Kearney, Sales Manager and Account Rep Dan Boundy...

"Dan and I had two customer service calls reviewing the ROII. The first was at a cabinet company. The client was late getting to the meeting so we were rushed. Dan jumped right into the ROII and how it worked. He had me go through each field of the program entering the data from their impression, clicks and CTR. The client gave us the average sales, closing ratio and profit margin. It took some probing to get the proper profit margin from the client. He was originally giving us the total margin after all expenses. I explained we were looking for just the margin on that sale. He has to pay the sales person and materials. He has to turn the lights on everyday and pay his lease regardless of if he's advertising with us or not. The margin went from 15% to 35% which really helped our ROI. It went from 0% to 134%. I also called him on the average sale. He gave us an average of $10,000. I thought that was quite low for a kitchen remodel. I asked him roughly what his last five sales were worth. We came up a more realistic $18,000 average sale which again increased our ROI percentage. The best part of the meeting was after we ran the ROI and he asked his receptionist for their call sheet. She's been asking every phone inquiry how they heard about the business. She had 4 calls per month from Castanet which was exactly how many inquires the ROII showed. Those 4 calls equated to 1 sale which generated over 150% return on their advertising investment. This client will be advertising with Castanet for a very long time! Our second ROII review was with an Office Furnishings store. It was similar to the first meeting with me inputting the data into the ROII. The client was so focused and impressed about the clicks his ad received that he was totally interested in the ROII. The meeting was very brief, but overall it was successful. The client is very satisfied with his schedule on Castanet and will continue to advertise"

Dan Boundy added this example with actual figures that you can test in the formula...

"I will go through each number I put into the spreadsheet that was eventually sold.
 
Starting with weekly investment. I put in the monthly amount of the proposed sale  $2010
 
Minimum impressions is the number we expect to see per month based on the addition of all the components of the package. this was 324,000 based on sold out situation
 
Click through rate is my best guess based on how other ads in those positions are expected to perform. This was .1255%
 
The action rate is always our best guess and for the most part we have been using 1% I went with 1.5% understanding it may be a little higher as the customer plans on sending online traffic through to his company website which performs quite well.
 
Client told me his closing ratio is 65%
 
The client is an alarm monitoring service and sells 3 yr agreements worth approx $1200 over three years. Their retention rate is high so I also attached a $1200 lifetime value assuming they will keep their clients at least 6 years.
 
Profit margin was a guess but I confirmed with the client during the presentation and he agreed it was close.
 
My presentation was done over the phone and the customer wanted to run a 30 day trial run to measure how well the campaign would be. I asked him what he would consider a successful campaign for 30 days and he said if he would get 12 leads and could sell 4 he would be very happy. As luck would have it the ROII with these parameters showed expected sales of 3.96. The customer also was asking to get this package for $1500. I informed him because of supply and demand telling us we don't need to discount our rates we would have to stick to our regular price and this package should meet his needs based on the ROII.
 
Currently we are running the 30 day campaign and will see how close to the ROII we come and from there we can secure a 6 - 12 month buy."

The ROII is very similar to the ROI EFS Generator in that beside each field is a question mark that you click to see an explaination of the information you are asked to get from the client. Included in the explainations are charts from DoubleClick with the latest industry research on Click-Through Rates and Action/Conversion rates by industry.  These are great guidelines but as you can see from Castanet's case studies, they have found some guidelines that work well in Kelowna, British Columbia but will not be the same in your market. As you can see from the above examples, it is critical to get accurate numbers from your clients.  I can tell you from visiting with a lot of clients that you need to know what the industry average is and state it back to them so they will even agree to a range.  Clients do not like to feel intimidated by this process, they all take various amounts of time to educate and feel comfortable going through the exercise and holding themselves accountable to the numbers they give you. Play with the formula before you get in front of clients, know what it takes to generate a good return on investment based on what you know now about the business.  The other challenge is that as properties begin their web portals, the impression numbers can be rather low as you build community, the key is to manage client expectations and work your formula's to generate at least a 20% return like we do in the ROI EFS Generator.  Let us know your questions and comments.



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