Profitable Marketing Programs (Part 1)

Deciding whether a particular marketing program is profitable to your business is often more subjective than the accountants would have you believe. You should not only consider the direct revenue and costs associated with a marketing program, but you should also think about the long term impact on your business.

The full benefits gained from a marketing program are not directly and immediately measurable. Many benefits happen over time. Advertising; brand building and awareness; Web site improvements; and other types of programs may be profitable in the long run but costly in the short term. Often, the best approach for these programs is to first set aside a budget, then spend your budget on the program(s) with the most potential for long term success.

Investments in improvements -- such as a redesign of your Web site -- may seem unprofitable at first, but are nonetheless the right thing to do. Many of these programs are beneficial because they keep you from losing business to your competitors over time. For these types of projects, the correct question to ask is "What happens if I do this versus if I do not?" Know how much your business must grow over time to make the improvement worthwhile and compare this to your potential business growth. If the cost is not reasonable compared to the potential, then look for other solutions.

Another reason the benefits of a marketing program may not be directly measurable is because new customers gained as a result of the program may, over time, buy from you more than once (i.e. have a lifetime value that is greater than the profit from a single purchase). Also, happy customers tend to refer additional customers by spreading the word about your goods and services. Both of these factors indirectly increase a marketing program's overall profit.

Making Assumptions

Predicting profitability can be a series of "best guesses" based on assumptions. In fact, you could probably manipulate your assumptions to make a program as profitable (or unprofitable) as you wish. A more successful approach, however, is to try to legitimately forecast profit. Be as reasonable as you can with assumptions, and then decrease your expected revenue by 20% - 25%. Often, results (either costs or revenue) come in worse than reasonably expected for a variety of unforeseen reasons.

Figuring Break Even Point

For promotional programs, you can decide how much to spend on the program by figuring out your break even point. One way to do this - while also taking into account longer term profits - is by basing the break even analysis on the amount of profit you expect to earn from new customers gained through the promotion, both now and in the future. To figure the break even point in this way, you should know:

1) the program's expected response rate,
2) the program's expected conversion rate, and
3) the lifetime value of a new customer.

Here, the response rate is defined as the percentage of those exposed to your program that you expect will take you up on your call to action.

For the formulas in Part 2 of this article, express the response rate as a decimal (Examples: 1%=.01. One-half percent=.005)

Conversion rate definition is the percentage of responders you expect to become customers. For the formulas in Part 2, express the conversion rate in decimal form (Examples: 10%=.1. 1%=.01. One-half percent=.005).

The lifetime value of a new customer is the amount of dollar profit you will make from the customer over a certain time period. It is common to define lifetime as anywhere from 18 months to two years.

Response and conversion rates can vary widely, depending upon how targeted your prospects are, how well your offer is written, and how involved the purchase decision is for your product. The type of program also has an impact on your response and conversion rates. To estimate these rates for your program, you can look to your past experience and/or ask the program vendor. You can also search on general marketing and research Web sites to find rules of thumb for your type of program. In all cases, document your assumptions. You will need them later to analyze program results.

In Part 2 -- http://www.websitemarketingplan.com/online/breakeven.htm -- I will look at three ways to approach break even analysis, depending on how the marketing program is structured.

Publication Guidelines:

When publishing this article on the Internet, please make at least one URL in the "About the Author" resource box clickable. Also, please notify Bobette Kyle of publication (articles @ websitemarketingplan.com).

Copyright Bobette Kyle. All rights reserved.

Bobette Kyle draws upon 12+ years of Marketing/Executive experience, Marketing MBA, and online marketing research in her writing. Bobette is proprietor of the Web Site Marketing Plan Network - http://www.websitemarketingplan.com - and author of the marketing plan and Web promotion book "How Much For Just the Spider? Strategic Website Marketing For Small Budget Business: http://www.HowMuchForSpider.com

---

Google News Updated : Sat, 11 Oct 2008 05:49:35 GMT US Near Changing Stance on North Korea as Terrorist - Wall Street Journal BBC News US Near Changing Stance on North Korea as Terrorist Wall Street Journal - 1 hour ago By JAY SOLOMON WASHINGTON -- The Bush administration is hoping to announce as soon as Saturday that it is tentatively removing North Korea from its list of state sponsors of terrorism, in a bid to kick-start a stalled nuclear disarmament agreement, ... AP: US to remove North Korea from terror blacklist The Associated Press US May Remove North Korea From Terrorism List, AP Reports Bloomberg Los Angeles Times - Voice of America - Financial Times - The Miami Herald all 1,714 news articles Publ.Date : Sat, 11 Oct 2008 04:02:40 GMT Democrats Are Gaining, Registration Data Shows - New York Times Los Angeles Times Democrats Are Gaining, Registration Data Shows New York Times - 2 hours ago By NICHOLAS CONFESSORE and GRIFF PALMER Some longtime Republican strongholds in New York are becoming increasingly Democratic, a striking change driven by demographic shifts, intense voter registration drives by Democrats and allied groups and sagging ... Campus registration drives in full swing KARE Ott, Hook face off for open county office St. Joseph News-Press The News-Press - Winston-Salem Journal - Tampabay.com - Beaufort Gazette all 739 news articles Publ.Date : Sat, 11 Oct 2008 03:20:33 GMT Bush: US authority able to solve financial crisis - People's Daily Online Telegraph.co.uk Bush: US authority able to solve financial crisis People's Daily Online - 1 hour ago US President George W. Bush arrives in the Rose Garden at the White House to makes a statement on the economy in Washington, October 10, 2008. President Bush vows action on financial crisis Los Angeles Times Bush's Lullaby to the Markets Washington Post Birmingham Star - Wall Street Journal - CNN - Bloomberg all 1,302 news articles Publ.Date : Sat, 11 Oct 2008 04:12:49 GMT Paulson Indicates Need to Purchase Bank Equity `Soon as We Can' - Bloomberg Telegraph.co.uk Paulson Indicates Need to Purchase Bank Equity `Soon as We Can' Bloomberg - 1 hour ago By John Brinsley and Rebecca Christie Oct. 11 (Bloomberg) -- US Treasury Secretary Henry Paulson indicated that pumping government funds into banks is a priority and said financial markets will remain volatile. US planning to buy equity in financial institutions Reuters Treasury Weighs Investing In Banks Washington Post International Herald Tribune - MarketWatch - CNNMoney.com - Bizjournals.com all 1,783 news articles Publ.Date : Sat, 11 Oct 2008 04:21:05 GMT G-7 Commit to `All Necessary Steps' to Stem Global Meltdown - Bloomberg Voice of America G-7 Commit to `All Necessary Steps' to Stem Global Meltdown Bloomberg - 1 hour ago By Simon Kennedy Oct. 11 (Bloomberg) -- Group of Seven finance chiefs, meeting after stocks plunged and as a global recession looms, vowed to prevent the failure of vital banks while failing to unveil new initiatives for thawing credit markets. Group of 7 Nations Seek Coordination in Rescue New York Times In latest bold step, Treasury will buy bank stakes The Miami Herald CNNMoney.com - The Associated Press - Boston Globe - FN Arena News all 890 news articles Publ.Date : Sat, 11 Oct 2008 04:03:42 GMT McCain Lauds and Attacks Obama in Same Day - New York Times CBS News McCain Lauds and Attacks Obama in Same Day New York Times - 41 minutes ago Senator John McCain of Arizona and his supporters at a rally on Friday in La Crosse, Wis. By ELISABETH BUMILLER LAKEVILLE, Minn. - After a week of trying to portray Senator Barack Obama as a friend of terrorists who would drive the country into ... McCain Moves to Soften the Tone at Rallies Washington Post John McCain, speaking to supporters, tries to defuse an anti ... Los Angeles Times Reuters - DetNews.com - Austin American-Statesman - The Miami Herald all 304 news articles Publ.Date : Sat, 11 Oct 2008 05:08:14 GMT Genomics project unites four Wisconsin research institutions - Milwaukee Journal Sentinel Genomics project unites four Wisconsin research institutions Milwaukee Journal Sentinel - 19 minutes ago By KATHLEEN GALLAGHER Wisconsin’s four biggest academic research institutions will collaborate on an initiative aimed at giving the state national stature in the fast-emerging field of individualized medicine, Gov. Marshfield Clinic gets biggest donation yet Chicago Tribune Wis. governor unveils gene research triangle Forbes Bizjournals.com - GenomeWeb News (subscription) - WJFW-TV - WISN.com all 51 news articles Publ.Date : Sat, 11 Oct 2008 05:29:44 GMT Datafeeds For Blogs Amazon Associate Store

PARLOT::Ebooks, Scripts, Websites, and more...

Adsense websites

Use a Guarantee In Your Headline To Increase Trust

Sometimes you can use a guarantee effectively in your headline.... Read More

Renting Your Mailing Lists to Others

RESOLVING THE "PROPRIETARY" DILEMMA... SHOULD YOU RENT YOUR OWN MAILING... Read More

Marry Your Marketing Plan

Make a vow to keep up your marketing schedule in... Read More

How to Earn the Right

"How to Earn the Right..."Marketing your professional services is a... Read More

Marketing On The Cheap: Speak Out!

No matter what business you are in, you probably have... Read More

Michael Jackson, Classic Marketing Blunders And Your Wallet!

You couldn't help but be captivated by the unbelievably cute... Read More

Mortgage Originator Marketing ? Differentiate or Die

One of the best ways to attract more clients is... Read More

5 Reasons Your Marketing Communication is Falling Flat

One of my associates sent me a promotional email she'd... Read More

Time for A Marketing Tune-up

If you have been in business any length of time,... Read More

Marketings Nuclear Weapon

Three seconds. That's what you have to convey your message.... Read More

Large One?

Here's a proven, and truly easy way to start increasing... Read More

First to Market Theory

AGE OLD QUESTIONBusiness scholars throughout the planet keep asking the... Read More

The Advantage and Consequences of New Economy Marketing

Some of the research that has been done today gives... Read More

The Top Seven Marketing Mistakes

In my view, nearly all government statistics about reasons for... Read More

10 Packaging Tips That Will Make Consumers Buy Your Product

The customer is king/queen. We have all heard this mantra.... Read More

Translation and Your International E-Commerce Strategy

Most businesses realize that they are simply a click away... Read More

To Be Successful Sell to Wants not Needs

My mother used to tell me, tongue in cheek, that... Read More

Ten Ways to Market Your Business by Doing What You Love To Do

Most business owners get so involved in the work of... Read More

Networking Basics Turn Yourself Into A Profit Making Giant

I would like to introduce you to one of my... Read More

11 Powerful Marketing Tips

Each of these 11 marketing tips is based on a... Read More

Dear Friend: Dont Start Your Non-For-Profit Fundraising Letters As A Stranger

Dear Friend:Don't do it.Don't start your fundraising letters with "Dear... Read More

Using Business and Greeting Cards Effectively

Business cards and greeting cards almost go hand in hand... Read More

Every Days a Holiday!

You probably know that February 2nd is Groundhog Day. But... Read More

How to Make Profits With a Commission Mailing Business

There are many mailorder publications that will list... Read More

The Beginners Mail Order Opportunity Guide

The "Mail Order" business is not a business of itself,... Read More