There are three main ways to improve campaign ROI within a customer segment:
Today, it is not uncommon to have the cost of new customer acquisition exceed what you will see in profits off the first purchase from a new customer. The way the major networks and publishers are pricing advertising vehicles has a lot to do with this.
So one way to improve ROI is to look at ways to reduce new customer acquisition (NCA) costs.
Many clients start out thinking that direct marketing and even some forms of interactive advertising are more expensive for NCA purposes than advertising. They are right on this, but only to a point. Often this misperception happens because clients are relying on the wrong metrics. “Cost per” calculations look only at the cost of a given media but do not look at the revenue or contribution side of the equation. The result is that you are constantly spending less to bring in more and more customers. The customers you get may be very poor quality, however, and eventually this destroys your franchise, or the ability of the business to drive repeat sales year after year.
A better strategy is to build a Market-Mix Model and determine the optimal mix of media that will drive new customer acquisition costs down while optimizing your total return on customers.
With these models in hand, we can quickly see that while advertising looks less expensive initially on a “cost per” basis, advertising does not always work so well when it comes to acquiring high value customers, the kind of customers why buy from you once and again. With business-to-business clients, we generally find that the least expensive way to create new customers is using key words followed by properly targeted direct marketing. General advertising runs a poor third to these media choices.
In most market sectors, marketing ROI is heavily influenced by what happens after the initial purchase. To increase ROI, look for ways to reduce the purchase interval between the first purchase and the next sale (“R” or recency), to encourage customers to buy more often (“F” or frequency) or to increase the size of the average sale by migrating customers to more expensive products in your portfolio (“M” or monetary value). Likewise, anything you can do to increase the likelihood that a customer will stay with you beyond the initial sale will increase the return on investment.
Originally published on Firewhite Consulting site, 5.05.