Thank you for using Market-o-tron 3000, the best imaginary business simulator system in the world. Today's simulation will focus on e-mail and SMS marketing campaign cycle. In this simulation, you are Richard, a new product manager in Imaginicorp, the leading retailer of products. Their product is sold online for a price of 100 dollars.
The first thing Richard does when he gets to the office is take off his coat, roll up his sleeves and gets a cup of hot coffee. Now refreshed by the coffee he's ready to tackle the issue of the day and get started with figuring out the cost per acquisition. He knows the price of the product is $100. By opening up his analytics report he sees that they have 4892 unique daily visitors and they sell 86 products per day. Whipping out his calculator, he quickly calculates that they have an average 1.758% conversion rate. That's a good start but he still makes a mental note to get the web store development team to increase conversion towards and past 2%.
The product he is selling costs him $42, so he makes a profit of $58 per product. He has a marketing budget of $20,000 for the campaign he is planning. In order to make that investment back he will have to sell at least 345 products with that profit margin. Technically, Richard could spend $57 for selling each product and still make a profit, but then he'd have to sell 20,000 items which is impossible. He also knows that he needs to sell more than 86 products from his current traffic. The trend in sales was very stable and the average didn't really sway much, allowing Richard to see the marketing effects clearly.
Since he knows his conversion rate and his sales target, he calculates that to get 345 sales, he will need at least 19625 new visitors to the site. His experience from advertising is that he usually gets 9.6% click through rate with their e-mail marketing and 22.5% from text messages. If he could he would have sent only text messages but it's really hard to find good marketing lists with large enough quantities. He has a list of 10,000 mobile numbers but that will only drive him 2250 visitors and 40 purchases. That means he'd need at least 191,407 messages sent to get his 18,375 missing visitors.
Since he needs approximately 200 thousand marketing messages sent and he has a budget of 20 thousand, he can spend a maximum of 10 cents per message. He has different variable costs: He needs to spend around $2,000 for a new mailing list, $7000 for the mail and campaign design, $2000 for the SMS design. He'll use MailChimp to send his emails where 200 thousand messages sent cost another $1000 (or $0.005 per message) and the SMS will cost $0.09 each, tallying up a cost of $900. With that investment of $12,900 he has everything sorted and still has budget left. That means that for the 345 sales he is expecting, he is planning to invest $37.40 for each acquisition, which is in turn about $0.66 for each click leading to the site.
Richard has learned that it is best to leave budget for later use. Instead of putting more money into advertising, he is thinking about investing the rest of his budget on a usability test. The aim being to increase his conversion rate towards 2% - making the current marketing investment even better.
Imaginicorp decided to outsource all marketing labor to agencies in the 90's and armed with his campaign details, Richard contacts his agency. He lays out the details of the product being sold, the goal and the call to action. He sets up a brief meeting for the next day. A week later he has approved the designs and texts for the different messages. He doesn't really have much input in the campaign content, apart from the product side. He tells the key values and other relevant information, but he understands that the messages are not aimed for him, but his future customers.
During the design Richard has gone through the CRM information, dividing the mailing list into three segments, each with a different message. He also added a personalisation layer for all recipients who had been customers before and were found in the CRM.
He contacts the companies analytics agency telling them about the campaign. He asks them to set up the campaign in their analytics tool. He also lets the marketing department know of his upcoming campaign and decides to move his campaign forward a week. When he spoke to his marketing people he found out another product launch might have distorted his campaign results.
Richard sets up all the channels and does a test send to all segments to try out the open and click through rates of the messages by sending 500 mails to each segment. One of the segment messages converts below average, so he spends a $1000 more to improve the segment and after another test he notices the results improving.
Now he's ready to start sending.
Richard's cocked, locked and ready to roll out his campaign. He has a plan to send out the messages in sequence, not all at once. He once did a campaign with great results but when he sent out 400 thousand messages at once they had logistic problems. His company couldn't deliver the products fast enough and people in his business made mistakes because of the high demand. Eventually they ran out of products. This caused a lot of bad feeling and led to people cancelling their orders due to the delays.
Instead, Richard is sending his messages in six batches during three weeks. This will allow him to control when he sends the messages. People spend their money differently when they have more of it, so aiming for days that are potentially pay days is a good idea. Having the time to see how the campaign progresses allows Richard to make changes and react to any logistical challenges before they become a problem.
The first thing to check after the first mail has been sent is that everything is being tracked correctly. The analytics and tags must be in place. It's essential to be able to recognise your campaign traffic from all your other sources of traffic otherwise you cannot know if the customers are responding to your campaign.
After the first two batches have been sent the results are as expected. This allows Richard to use the rest of his budget to improve the purchase process and shopping cart behavior. This means he is able to increase the conversion rate to 1.893% which in turn means that his 21,450 unique campaign visitors bring in 407 purchases, making the company $40,700. ($0.93 CPC, $49 CPA)
If Richard had just saved the $7,100 left from his budget he would sold $37,800 worth of goods. This might seem like a smart idea because the return on investment seems larger (Every dollar invested brings in almost 3 dollars. $0.60 CPC, $34 CPA). However the beauty is that the conversion rate improvement delivers outside of the campaign. With the new conversion rate they sell 93 products daily to organic traffic, meaning that they sell 7 items more per day. During the three week campaign they sell 147 items more through organic sales, meaning that the earning from the campaign is $55,400. By having $0.93 CPC and $36 CPA in just three weeks the investment would pay itself off. The ROI ratio from both models is close to 1:3, but the conversion rate optimisation will keep impacting your bottom line over the long term.$254,800 to be exact. The ROI becomes very good when every dollar invested brings in $15.51 in revenue for the rest of the year.
Now that Richard has the facts, knows the messages and what to expect he can start improving the results. He has more money coming in every day and he doubled his marketing budget for the next round. He knows he can't use the same exact messages every time, but he has a good base to build on. He plans two more campaigns in the near future and invests half of the budget into improving the conversion rate.
Before Richard does those two new campaigns he goes through the campaign results in detail. He needs to understand the operational levels because they will now become the new standard for future campaigns. 2 years later Richard has been given a new position with more responsibility and he looks after all the products sold on their site. He has six people under him running campaigns like he used to do. Business is doing well and they are turning a profit. They have been adopted the traffic light model to continually increase their conversion rate and lower acquisition costs.
By eliminating the worst 25% of campaigns, learning from the best 25% whilst constantly developing the mass 50% they have been able to increase their CTR to 19,2% in e-mail marketing and an amazing 45% in mobile. Even more importantly, they have been able to kill off expensive campaigns that didn't bring results.
If you liked this chapter, please recommend it to others.
"Data, data everywhere and yet all decisions from the gut!" That just about encapsulates why our marketing strategies are faith based, why our websites are barely functional ("the CEO loves purple!"), and why we are not making the types of profits we deserve. I love this book because Steve and Markus provide specific advice on how to unsuck our lives! Buy. Don't suck. Win.
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