It’s budget planning season. Maybe if you’re lucky you’ve already made your way through it. Many of our clients and colleagues are in the process of planning their 2012 direct marketing budgets right now.
In the process an important question usually surfaces… Is there a way to spend less and sell more?
In my experience, the answer is YES in almost every case. But to successfully accomplish this challenge you may have to shift your thinking. Here’s some ideas and advice to help you build your plan to address the question.
Cutting costs is only part of the answer.
I’ve seen many managers and marketing departments become overly focused on cutting cost per package from their direct marketing efforts. This can be a trap if you’re not also thinking about performance, and your key financial objective.
These companies do things based on rigidly following the budget plan and avoid looking at results. They become limited in the solutions they can explore, and shy away from testing and focus on low-cost tactics. The result is usually direct marketing efforts with lackluster results.
Focus on a clear financial objective… profit.
Are your direct marketing programs profitable? Can you show the numbers and prove it? How should you measure of ROI or profit?
A surprisingly high number of small and mid-size companies have a hard time answering these questions. These companies look at their direct marketing as an expense that is not clearly tied to revenue or profit. The marketing team doesn’t really have a grasp of the financial objectives for their marketing programs.
If you fall into this group, don’t worry you’re not alone. To fix the problem, start by getting clear about what key metrics and financial goals your marketing has to hit to be considered profitable.
Cost per sale is a good metric for decision making which a lot of companies use to judge their direct marketing performance. I like this approach because a lower cost per sale usually means better ROI and profit. And cost per sale is a function of both the cost of a direct mailing, but it also its performance (response and sales conversion).
Once you have a clear financial goal you have an opportunity in the coming year to use tracking and measurement to PROVE that your marketing is an investment that is making the company loads of money.
Once your boss or your board of directors can clearly see that every $1 spent on your direct marketing program can predictably return $5 in a reasonable amount of time, the budget planning question will quickly become – “how do we ramp this channel up?” instead of “how do we reduce the budget?”