About once a month, someone asks me about ROI. It happened last week… right on schedule. Like so many other elements of marketing, it is misunderstood. Maybe this will clear things up a little.
Everyone… including me… would love to be able to measure the value of any single marketing investment. And, that would be possible if converting a sale in a small, professional service business was as easy as ordering a pizza.
Think about ordering a pizza for a minute. Pretty much, you know what your options are, regardless of the brand. You have an expectation of the price, lots of brands from which to choose and an idea of when it will be ready. In these and many other ways, you are a highly educated consumer when it comes to pizza. And, when you are hungry, you will even compromise when it comes to your pizza.
Since the vast majority of the public is this way, formula marketing on a massive scale works predictably. Under these conditions, the marketing industry has established response rates that are true… but can be confusing in the hands of small business owners.
Direct mail is a great example. Pretty much everyone knows or has heard that direct mail yields a 1-2% response. If you do a little homework, you can even raise that same-list response rate as high as 10% with mailings over a 5-6 month period.
So, in the case of a cosmetic surgeon or a cosmetic dentist, should you expect the same direct mail response rate of 1-2%? Well, is your sales process anything like buying a pizza? And, is the market for your cosmetic services as educated as the pizza buying market? Not by a long shot. Where, then, does that leave you in deciding what is good marketing for your practice if you cannot evaluate given elements of the plan in terms of return.
In the case of a service business, especially high-end professional services like our clients, the process of converting new business is more complicated. This is why we have our clients focus on the three distinctively different principles of marketing, media and sales. Each is part of the process of getting a new client. And, this sort of complexity keeps you from the fine sort of ROI measurement that all of us want so badly.
For example, let’s use another direct mail example; this one is from a professional small business, a cosmetic dentist. Two thousand mailers go out to a targeted list and the dentist is expecting a 1-2% return or 20-40 calls. Is this realistic? Will 20-40 cosmetic dentistry cases show up as a result of the mailer? Will the phone ring 20-40 times?
Likely the answer is no. But, the response is probably there. Our clients normally see a spike in web visitors following a direct mailer. Normally, we see some calls from mailers but the web response is almost always stronger. So, if someone responds to the mailer by checking out the practice online and the web site does not engage and sell the lead properly, it lowers the perceived ROI from the mailer.
Let’s take it once step further. Say the same mailer generates a phone call from a patient who is already interested in finding a new dentist. If the person answering the phone fumbles the lead and loses it because of poor sales training and customer service skills, it diminishes the perceived ROI from the mailer.
Most of our strategies help clients understand what responses they get from the individual steps. Ask me about tracking phone numbers and detailed web stats if you are not one of the clients who use these tools. And, hopefully, with this example, you will see why we cannot use single-activity ROI for small businesses.
Instead, this is how we recommend you measure your ROI. You measure it in terms of your total investment and your total gross growth. So, if you invest a total of $25,000 in marketing, media and sales improvements and you bill an additional $75,000 in a year, your ROI is 3:1. This simple formula will allow you to measure over longer periods that you maintain commitments to developing your marketing, media and sales. If you follow our advice and address the three main principles of marketing on a big-picture level, figuring your ROI will not drive you crazy and you will be doing it right.
