No, the first one is not how many people came in with a mailer or to get a premium. That would be called anecdotal evidence; we’re looking for actual quantified results of your performance in relationship to how much you spend.
The first best way is to determine the ratio of INFLUENCE the direct marketing against your dollars spent. INFLUENCE should be measured during a reasonable period of time from when the postal, emails or other direct methods of touching a potential customer was delivered and the resulting sale or service RO that ensued. Usually, 2 months is a good cut off point because you would want to touch those people at least that often due to the length of people’s buying cycles which can vary from a couple of days to many months. Those who take many months to pull the trigger would require being touched by your ads on a somewhat regular basis for the duration.
So how do you quantify INFLUENCE? You take your marketing manifest (at the household level) and match it to your sales and service ROs during the appointed period of time (in this case, 2 months). INFLUENCE is derived by what percentage of your total sales were people you marketed to (or serviced in the case of service). If your direct marketing relates to 15% of your total sales during the 2 month period, the INFLUENCE factor for your direct marketing is 15%.
The diminishing return factor now comes into play. If you spend $25,000 over two months for 15%, can the same system get you 25% if you spend $35,000? At what point are you spending efficiently and at what point are you over-spending? This is what you monitor. Also, over time, does the same ‘spend’ grow in influence or decline? If it declines, your method of creating a marketing list (or your marketing company’s) has a built-in expiration or ‘shelf-life’. If it grows, your method of list creation is always refreshing the list with the right people, dumping the wrong and creating a pipe-line. That’s the best of all possible worlds for direct marketing.
If you find that you are marketing with the same dollar amount every two months (say, $30,000) and the influence continues to grow, you’ve learned two things. The methodology for list creation is sound and you have been building a pipe-line. As an example, let’s say the first 6 months you average 18% INFLUENCE and the following 6 months you average 27% INFLUENCE with the same ‘spend’. That’s a very good sign that you are efficiently building a pipeline that will allow you to eventually reduce some of your ‘spend’ elsewhere. One example of a list creation that has a ‘shelf-life’ is using ownership data. One example of list creation that grows is using behavioral data.
The second best method is measuring your month to month MARKET SHARE. This method would be the very best of the two if all things were always equal…but they’re not. The factors that have to be taken into account when looking at market share are:
- Am I spending the same amount of money on marketing each month?
- Do I have a consistent inventory?
- Does the demand of my brand (Ford, Toyota, etc.) stay constant?
If the above were always true, your month to month MARKET SHARE would be the best way to determine if you are effectively marketing.
A note about MARKET SHARE: Use the registration data from Auto Count an Experian Company in a radius that is reasonable for your market (15 miles in a metro area, more in less metro areas). All new registrations and used registrations going back to model year 2008 or 2009 will give you the number from which to compare your sales numbers. Are you getting a bigger piece of the pie going forward, or are you slipping? You MARKET SHARE is the only accurate and quantifiable way of determining this. There are only so many cars sold in a month. You may want to beat last month’s numbers, but you are heavily restricted to how many vehicle sales the market will yield.