Marketing Math

Marketing MATH:
Formulas to Maximize Your

Marketing Dollars
Bit.ly/mktgmath
Whats that Formula?
These slides include

All of the marketing math formulas
Youve probably heard about
But never understood . . .
2
1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved.
Marketing Math Formulas for:

Marketing
Contribution
ROI
Expense to Revenue
Budgeting Formulas
Breakeven Analysis
CPA Benchmarks
Lifetime Value
3
Social Media
Engagement
Conversion Rate
Revenue Per Email
CTR
Marketing Contribution
$ Sales
Shipping and Handling Fees
Gross Revenue
Returns and Bad Debt
Net Revenue
Cost of Goods Sold (COGS), shipping, 800#, credit card costs
Gross Profit
Marketing Costs
Marketing Contribution (to profit and overhead)
4
ROI: Return on Investment

Marketing Contribution
MINUS Overhead Contribution (typically % of sales) =
= Net Profit
ROI =
Net Profit
$ marketing cost
$10,000 net profit / $50,000 marketing cost = 20% ROI

(the return on the investment before interest and taxes)
5
For Every $1 . . .
For every $1 spent on Marketing, we generated $5.50 in
Revenue.
$27,500 revenue
$5,000 marketing
$5.50
For every $1 Revenue, Cost was $0.18 for Marketing.

$5,000 marketing
$27,500 revenue
$0.18
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Marketing Expense to Revenue

Expense to Revenue Ratio =
Total $ Marketing cost
$ Revenue generated
If Marketing costs are $5,000 and we generated $27,500 in sales:
$5000
$27,500
100
= 18%
Our Marketing expenses were 18% of Revenue generated
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PLANNING METRICS
Budgeting with $ Sales Target
Sales Target
Average Order Size
$100,000
$200
= 500 Target Orders
Cost Per Sale (based on Past Year or Campaign) =

$ Marketing Cost / # Orders
$50,000
/
625
= $80
Marketing Budget =
Cost Per Sale X 500 Target Orders
$80
X 500
= $40,000
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Budgeting with # New Customers Target

New Customer Target = 1,000
Past Cost Per Order
Marketing Budget
= $ 80 (CPO)
=
1,000
X $80 = $80,000
Boss says: you can only have $60,000.

Your only options:
Reduce new customer target
Only use marketing vehicles that deliver customers at $60 CPO -- if
youve identified any
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Breakeven Analysis (Incremental*)

Gross Profit Per Sale =
Average Order Size MINUS direct product costs per order
$79
$39
= $40
Breakeven Quantity =
Total $ Marketing Cost / Gross Profit Per Sale
$50,000
/
$40
= 1,250
orders needed to recover the marketing costs.
Breakeven Response Rate =
Breakeven Quantity / # Reached
1,250
/
65,000
= 1.92%
Only incremental revenue and costs of a sale are considered, without overhead and profit requirements.
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Breakeven Analysis (Incremental)

Other Equations . . .
Cost Per Contact =
Total $ Marketing Cost / # Reached
$50,000
/
65,000
Breakeven Response Rate =
Cost Per Contact / Gross Profit Per Sale
$.77
/
$40
= $.77 each
= 1.92%
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Breakeven Analysis with Overhead

Physical Product
$80 Sales Price + $19 Shipping & Handling =
$99 Gross Revenue per Sale
Returns and bad debt (6%) = $ 4.80
Cost of Goods Sold (COGS) = $16.00
Credit card processing fee (3%) 2.40
800 number ($2/call @ 20% of callers)
0.40
Shipping & Handling costs =
15.00
$38.60
$99 - $38.60 = $60.40 Gross Profit per Sale
(continued)
12
Breakeven Analysis:
With Overhead
Gross Profit Per Sale
=
Overhead (10%)
Breakeven Allowable Cost Per Sale =
$60.40
8.00
$52.40
Profit (30% of COGS)

Marketing Allowable Cost Per Sale
4.80
$47.60
Bring in each Sale at a cost of $47.60 to cover overhead and profit.
13
BENCHMARKS:
How much can you spend to acquire a
customer? (CPA)
Are you willing to just breakeven on each new customer?
(Can you rely on customer Lifetime Value to generate profit)?
CPA = Gross Profit Per Sale (incremental breakeven without overhead)
OR
CPA = Breakeven Allowable Cost Per Sale (breakeven with overhead)
Do you need to make a profit on every first sale?
CPA = Marketing Allowable Cost Per Sale
14
1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved
CUSTOMER ANALYSIS:
Lifetime Value (LTV)
LTV =
X
Average $ Sales from Each Active Customer Per Year

Average # Years as Active Customer
(continued)
15
Lifetime Value
Database Snapshot Approach
1. # Active Customers
(Customers as of 1/1/12 who made at least one additional
purchase in 2012, or your definition of Active)
2. Total of all $ sales from those Active Customers over past year
Total $ Sales from Active Customers last year =
# Active Customers last year
Average $ Sales Per Active Customer Per Year
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(continued)
Lifetime Value
For EACH Active Customer in 2012:
Month/Year of Last Purchase (in 2012)
MINUS
Month/Year of FIRST purchase (first purchase from you)
= # Months as Active Customer
Total Months from all Active Customers
# Active Customers Last Year
12
= Average # Years as Active Customer

(continued)
17
Lifetime Value
Total Sales from Active Customers Last Year = $400,000 =
=
20
$20,000 Average $ Sales Per Active Customer Last Year
Total # Months Active from all Active Customers = 8000 = 40 =
= 20
12
3.3 Average Years as Active Customer
LTV = $20,000 X 3.3 = $66,000 per Active Customer
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Social Media Metrics

What should you measure with Social Media?
Engagement or Conversions as a % of Total Likes or Followers
Facebook:
LinkedIn
Twitter
# Comments and Update Likes

# Page Likes
# Comments and Post Clicks
# Following
replies + retweets + mentions + favorited*
# Followers
* All of these are reported under Interactions.
19
1991 - 2013 ResponseFX.com, a Division of Strategic Marketing and Advertising, Inc. All Rights Reserved..
Email Metrics
Revenue Per Email =
$ Sales
# Emails Delivered
Click-Through Rate (CTR) =
# clicks
# emails delivered
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Websites
Visitors to Leads Conversion Rate =
# leads generated for a period
# web visitors for the period
Visitors to Sales Conversion Rate =
# sales generated for a period
# web visitors for the period
21
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22
Copyright 2012 Strategic Marketing and Advertising, Inc. All Rights Reserved.

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Marketing MATH:

Formulas to Maximize Your

Whats that Formula?

These slides include

Marketing Math Formulas for:

ROI: Return on Investment

$10,000 net profit / $50,000 marketing cost = 20% ROI

For every $1 Revenue, Cost was $0.18 for Marketing.

Marketing Expense to Revenue

Our Marketing expenses were 18% of Revenue generated

= 500 Target Orders

Cost Per Sale (based on Past Year or Campaign) =

Budgeting with # New Customers Target

Boss says: you can only have $60,000.

Breakeven Analysis (Incremental*)

Breakeven Analysis (Incremental)

Breakeven Analysis with Overhead

Profit (30% of COGS)

Bring in each Sale at a cost of $47.60 to cover overhead and profit.

Average $ Sales from Each Active Customer Per Year

= Average # Years as Active Customer

Social Media Metrics

# Comments and Update Likes

* All of these are reported under Interactions.

Click-Through Rate (CTR) =

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