Several years ago, I remember attending industry conferences and hearing about the importance of being able to measure "return on investment" (ROI). Today, we're hearing the same thing, although it's known as an -equation for success. "Whatever we call it, an advertiser's return on investment is critical to long-term growth of our business, so we need to examine several key issues:
- Tracking a business,
- Sourcing retail traffic,
- Configuring and implementing tangible tracking devices within the retailer's organization.
What will be presented at radio-industry conventions seven years from now? New measurement devices? Strategies for effective sourcing and tracking? They are likely to be issues in the future, but as the proactive and highly trained thinkers we are, we must recognize that the time to address them is now. If we wait until 2025, the industry will lag once again behind other viable media battling for the ever-so-great advertising dollar. Measuring Return On Investment
It's one thing to compute and manage expectations with the ROI formula, but without effective measurement, setting a 20-percent threshold for expectations won't matter. Your measurement systems must be in place for you to be able to take credit for any increase in your clients' sales and/or to protect you from the decrease in sales through floor traffic that could have gone up or down during your campaign. Unless you are on the sales floor while the business is open and you are closing the deals, the only thing you can really track and take credit for is the traffic/activity that your station brought through the doors. (This is in addition to such variables as creative ad copy, duration of campaign, timing etc.)
Let's take a real-world example from an automotive dealership, Let's say a dealers average weekly "ups" for the month of May equals 125 per week. The average weekly sales for the dealership, within that month, let's say is 38. The closing ratio for this dealership in May was 30.4 percent, an excellent closing ratio. The "up" traffic in August is considerably higher at 152, while sales are down at 28. This is a closing ratio of 18.4 percent - 12 percentage points less than three months earlier.
If we take this one step further and calculate that the monthly number of cars sold in May is 152 (38 per week x 4 weeks) and the monthly total in August is 112 (28 per week x 4 weeks) we see that 40 fewer cars were sold in August than May. At an average of $25,000 per car, this comes to $1 million in lost sales. Yes, someone did lose a job over this.
The point here is that a media property is in charge of only one equation in the success of the client in this case study. If we went to this dealership and simply asked the manager what his average monthly sales were - allowing expectations to be set exclusively on the sales end - we would most likely be "cancelled" with a fate similar to that of the person who was fired.
What in this dealership caused decreased sales when the traffic went up? Was there turnover in the sales department with fewer salespeople? Did the salespeople magically lose their closing skills? Did they have better sales incentives in May? What promotions were done in May vs. August? Dare we suggest that the media used were attracting unqualified buyers in August? The fact is, the blanket question "How many units are you moving per month?" is worthless unless we know this dealership from the inside out.
We should be asking such questions as how the dealership tracks the "ups." Month-by-month since 9/11, what has been its average monthly "up" traffic? What is the current closing ratio, and is the dealer tracking this vital aspect in its sales department?
Remember that 12-point difference in closing ratio? If an internal focus increased this ratio by just 3 percent, and if that drop - which amounts to 10 cars - doesn't happen, it's a $250,000 increase over August's existing gross sales figures.
The sales reps who track, source and measure the results and expectations of a client will set themselves apart from anybody selling any advertising medium. How many reps today ask, "How do you track your prospects and sales?" I venture to guess it's less than 5 percent - and that might be generous.