Using CRM Technology to Improve the ROI of Your Marketing Efforts

Thursday, September 08, 2011
Using CRM Technology to Improve the ROI of Your Marketing Efforts
The concept of Return on Investment (ROI) is one that you’re likely familiar with. That being said, how many of you actually take the time to calculate the ROI of your marketing efforts? If you’re not using CRM technology to plan, execute and track your marketing campaigns, calculating a return on your marketing expense can be an extremely difficult task to say the least. In this article, I’ll provide a definition of ROI and show how you can use a CRM application to help you make better and more informed decisions about how to spend your marketing dollars.

ROI – What is it and How Do We Calculate It?
Let’s start by explaining the concept of return on investment. Essentially, ROI is a measure of the benefit that’s derived from an expenditure or investment.  When calculating ROI, the results are typically expressed as a percentage although you may also see results expressed in other ways. For example, when evaluating whether or not to make an investment, ROI may be expressed in terms of “Payback” (i.e. how long it will take to recoup the initial investment) or it might simply be expressed in monetary terms as a dollar amount.

To calculate ROI, you need to know two key pieces of information:
  1. The amount of the initial investment
  2. The amount of the gain resulting from making the initial investment
If you have these two pieces of information, you have everything you need to calculate ROI as follows:

(Yield from investment – Cost of the initial investment) / Cost of the initial investment = ROI

We can illustrate this in practical terms by using the following example. Let’s assume we conducted a small marketing campaign that cost $1,000. After tracking and analyzing the results of the campaign, we calculated that it led to sales of $1,400. In this case, the ROI of the campaign would be 40% calculated in the following way:

Amount of initial investment = $1,000
Yield from the investment = $1,400
ROI = ($1,400 - $1,000) / $1,000 = 40%

Why Should You Calculate ROI?
Having seen that ROI is a relatively straightforward concept, you may still be asking the question, why do I need to calculate it in the first place? Well, if your practice has an unlimited marketing budget and money is no object, you might not want to or indeed, even need to. Realistically though, it’s unlikely that you have an unlimited amount to spend on marketing so you need to calculate ROI in order to allocate your marketing dollars and spend your budget on the strategies that yield the best results.

To show an example of why calculating ROI is important, let’s assume that your practice typically engages in the following types of marketing efforts: 

  • Direct mail (i.e. letters and postcards mailed to prospects)
  • Email marketing
  • Dinner seminars
  • Newspaper advertisements
  • Paid online advertising (i.e. Google Adwords)
  • Radio advertisements
Let’s also assume it’s the start of the year and you’re assessing where to spend your marketing dollars in the next 12 months. You’ve done your research and determined that the total cost of conducting each of these campaigns is as follows:

Marketing Strategy
Cost
Direct Mail
$5,000
Email Marketing
$8,000
Dinner Seminars
$25,000
Newspaper Advertisements
$10,000
Paid Online Marketing
$2,500
Radio Advertisements
$3,500

The cost to execute all of these campaigns is more than $50,000. However, you only have $25,000 budgeted for marketing this year. Which of the campaigns should you execute and which of them should you pass on?

If this is all the information you have, it’s next to impossible to make a decision. Without knowing the potential return of these campaigns, any decision you make is essentially a shot in the dark. However, if you had tracked these types of campaigns in past years, you would have data that you could use to help you make a more educated assessment. Let’s assume you had conducted these types of campaigns in the previous 12 months and for simplicity, assume that the costs of the campaigns hadn’t changed. Looking at the results, you are now able to calculate ROI and make a more accurate assessment  of where to spend your marketing dollars:

Marketing Strategy
Cost
Revenue from Campaign
ROI
Direct Mail
$5,000
$8,000
60.0%
Email Marketing
$8,000
$6,000
(25.0%)
Dinner Seminars
$25,000
$30,000
20.0%
Newspaper Advertisements
$10,000
$10,500
5.0%
Paid Online Marketing
$2,500
$2,500
0.0%
Radio Advertisements
$3,500
$3,000
(14.3%)

In this example, we can see that the strategies yielding the highest ROI were direct mail followed by dinner seminars with ROI of 60% and 20% respectively. We can also see that two of our campaigns yielded a negative return while one yielded no return and one a 5% return. Having access to this data has given us a means to assess our marketing effectiveness and could lead us to determine that we should spend the bulk of our marketing dollars on direct mail and dinner seminars and would likely want to cease any email marketing and radio advertising.

At this time, it’s important to note that this conclusion is based solely on the revenue derived from the campaign and doesn’t take into consideration the positive impact your radio advertising and email marketing might have had in creating brand awareness - A person may have received your direct mail piece and not responded but subsequently, they heard your radio advertisement which reminded them of the direct mail piece they had received and then decided to follow up with you. This brings up an important point – all marketing doesn’t have to have a positive ROI – you may want to conduct some campaigns to help you build your brand in your local marketplace which will help improve the ROI of all of your campaigns in the future.

Using a CRM Application to Collect ROI Data
As mentioned previously, if you’re not currently using some type of CRM application to plan, track and analyze your marketing campaigns, it’s next to impossible to calculate the ROI of your various campaigns. In earlier articles, I used InsurPro from Lodestar Technology Labs (www.startercrm.com/insurance-pro.aspx) as an example of a CRM application designed specifically for insurance and financial professionals.  If you were to use a CRM system like InsurPro, your practice would have the necessary tools to more effectively assess how well your marketing campaigns were performing. Let’s take a moment to look at how InsurPro helps you do this.

InsurPro has a “Marketing Programs” tab on the main dashboard. Clicking on this tab opens up the marketing programs dashboard where you have the opportunity to create new marketing campaigns or update existing campaigns. When you choose to create a new campaign, a dialog box opens that provides access to data fields that allows you to enter information about your campaign. This information includes:

  • The campaign owner
  • The status of the campaign
  • The type of campaign (email, direct mail, etc.)
  • A description of the campaign
  • The total audience for the campaign
  • The expected (estimated) response
  • The actual response
  • The budgeted cost
  • The actual cost
  • The expected revenue
  • The actual revenue
Along with this, you can enter information about the tasks necessary to complete the campaign, assign responsibility for the tasks related to the campaign and make additional notes about the campaign.

Once a campaign is completed, InsurPro provides reporting functionality that allows you to generate reports containing campaign summary data – i.e. the total cost and revenue generated from a campaign. Using this data, calculating the ROI of your campaigns is a simple task.

Tracking Campaign Response
One important consideration when discussing ROI relates to the tracking of your campaign’s response. Unless you include a response tracking mechanism in each campaign, measuring response is extremely difficult, if not impossible. Examples of campaign response tracking tools include:
  • A unique phone number to call – Good for direct mail, print ads and radio ads
  • A unique landing page on your website  – Good for paid search and email campaigns
  • A limited time offer – Good for direct mail, print ads and radio ads
In addition to including a response tracking mechanism in your ads, it’s also critical that when you do receive a response, you record that response in your CRM application. Again, InsurPro provides this capability by including a “Source” field in the Contacts record where you record how that contact was referred to you.

Conclusion
In conclusion, tracking campaign ROI is essential to the financial well-being of your practice. Use a CRM application and it’s easy to do. Failure to track campaign cost and response could lead you to make disastrous mistakes in how you allocate and spend your marketing budget. Calculate ROI and you’ll start to make better decisions that can help you manage and grow your practice.