Any seasoned direct marketer the importance of understanding the numbers side of the business. You have to know both the left-brain (analytic) and right-brain (creative) rules for maximum success. My philosophy is “know the rules before you break them.”
People often ask me for the most important direct marketing metrics. As we have evolved to a wider use of selling channels (Websites, e-mail campaigns, search engines, in-store selling), do the tried-and-true tenets of catalog marketing still hold up?
Here are my top five metrics that every multichannel marketer must know and use in the measurement and tracking of their business.
1. Business financial model
Every consumer, business-to-business, or even not-for-profit multichannel seller has a unique financial model that describes its business–there is no single business model. Each company has a set of costs (including its cost of merchandise, fulfillment, marketing or selling and administrative or overhead) that is totally specific to its operations. This business model should reflect a mature company position (at least three to five years in business) and must represent the goal or ideal that the company is striving for.
2. Cost to acquire new customers (or “front end” marketing)
There are dozens of ways to recruit new customers. The challenge for successful multichannel merchants is identify those acquisition methods that produce the best short term (from a cost standpoint) and long term (as in lifetime value) customers for your company. The Internet and retail stores have added to the versatility of the ways to bring in new buyers. But the bottom line is in measuring what it costs to get new customers and then tracking them for longer-term value.
3. Lifetime value of customers
The “backend” analysis of acquiring new customers is measuring their longer-term value or their propensity to continue doing business with your company. Multichannel selling is not about a one-time sale. It is totally driven by repeat sales from existing customers. Knowing what customers will spend over time is crucial to putting a value on your list and in determining how much you can spend to acquire new customers.
4. Square-inch analysis
The primary method of measuring the results of your merchandise efforts is the square inch analysis. Ideally, every direct seller needs to know the productivity of every product (SKU), page or spread in the catalog, price point, and product category. Measuring the contribution to the profitability of every aspect of merchandising is critical to long-term financial success.
5. Breakeven Analysis
This is an analytical tool that too many multichannel merchants ignore. Breakeven analysis works backward from the financial model to solve for percent response and average order value (AOV) needed to generate the revenue per mailing, email campaign or any customer promotion to pay for itself (or break even.) This analytical tool can be used in conjunction with the business model to help in the pre-promotion expectation and the post promotion look at results.
We’ll look more at the specifics of each of these techniques–and other multichannel metrics–in coming weeks. Stay tuned.
Jack Schmid is founder of multichannel marketing consulting firm J. Schmid & Associates in Shawnee Mission, KS.