“A man who stops advertising to save money is like a man who stops the clock to save time.” This quote is generally attributed to Henry Ford, defending his marketing budget during the Depression. Operators in the midst of the present recession appreciate those words. We realize that we are fighting for our sales and we don’t want to waste our ad dollars. Daily, we are bombarded with ‘fool-proof’ marketing ideas from polished snake oil ad representatives. Where is the proof that these marketing ideas work? How do you measure the effectiveness of a promotion? That’s what ROI (return on investment) is all about.
ROI is a measurement used to evaluate the efficiency of a marketing investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.
The return on investment formula: If I generated an extra $1000 in profit from a marketing campaign and it cost me $700 to implement, my ROI would be 41%. Many marketing Web sites are equipped with these calculator applications, so you can see the possibilities of using different marketing tactics. For example, using one such calculator I see that my new movers program generates $7,657 to my bank account when I invest $143, assuming the lifetime value of a customer. (Your average sale multiplied by the number of times a customer frequents your establishment per year multiplied by the length of your average customer relationship = Lifetime sales multiplied by your profit margin = Lifetime value of a customer.)
Chris Hall, owner of Big Red’s Pizza and Subs in Utica, Ohio, adamantly states: “You have to be able to track your marketing somehow, otherwise you’re throwing money at the public and praying it off.” Hall’s outlook has paid off. His business has grown nearly 600 percent since 2005. Hall not only tracks and measures sales, but also the response rates to different types of offers and the areas yielding the greatest response rate. These ROI measurements give Hall the ability to re-vamp his marketing in a timely fashion. Hall advises that putting an expiration date on offers is a must. expiration dates rather than a limited time offer gives you the means to measure and finetune your marketing to get the biggest bang for buck. Lance Benton, franchisor of the 50 unit Pizza, agrees. “You have to be constantly monitoring your ROI, promotions that worked well lose steam over time and you need to be on that,” Benton says.
There is more to a promotion than the initial dollars and cents. John Sculley, successful businessman of PepsiCo and Apple fame, has said: “No great marketing decisions ever been made on quantitative data.” Benton sees the wisdom in that. “Naturally we look for an increase in sales and profits when implementing a promotion, but other factors, such as obtaining new customers and gaining their data, are also important benefi ts for future promotions,” he says. Small business consultant Issamar Ginzberg, of Monetized Intellect, offers this thought: “It’s not about how many pizzas this ad sells, it’s about the lifetime value of the customers this ad brings in. As long as the ROI is not negative up front, it’s a go.”
In my own pizzeria, I utilize my POS to tell when I am in the heart of good promotion. The POS will indicate for me how many of the incoming calls are new customers and I know I’ve got this chance to make a great first impression and to boost my ROI now and in the future.
“You should also be measuring community awareness and how much free publicity your company is getting from promotions,” says Ginzberg. “A good promotion will get a nice amount of free additional publicity from the media, and especially from word of mouth.” Do people talk about you on social media and restaurant review sites? Do your customers help drive traffic? These residual effects can all be included as a benefit of your investment. Various Web sites, like kurrently.com, are popping up all the time to help you measure the effects of social media.
While some experts will do the math just for the given time period of a promotion, we realize that we are not traveling salesmen. Our businesses are part of a community, and we are in it for the long run. Therefore, these intangible benefits need to be given due consideration. Hall attests to the lifetime value factor, too. In a guerilla marketing move, Hall sent a coupon to 68 Facebook fans of local competitors; of those, 47 people responded. “We now see 18 of them weekly and another nine new customers bi-weekly,” Hall says. That sure beats dumpster-diving!
Most pizza marketing is executed in a direct response manner. That being said, Ginzberg adds: “Make something that is promotion-unique, like a new item or a different sized item, and you will have a built-in calculation for how the promotion is doing. Another trick is putting a different phone number (say, toll free) on a specific promotion. Any calls that come in on that number can be traced back to a specific promotion.”
Success is not left up to chance. Ford, Sculley and hosts of other American businessmen knew they had to market their product to make it great. They learned how to market their products by monitoring ROI.