E-Class #23: How to Test and Measure Your Results

Checkpoint:

• If you don’t have a website, you have started to create one, and have hired a professional to build it for you.
• If you do have a website, you have identified opportunities for updates and have started to implement them.

Testing and measuring your marketing is critical to the growth and profitability of your business.

In fact, unless you have some form of measurement system in place, how will you even know if your business is growing or making a profit?

Of course if your net income is greater than your costs, you know you’re making money, but how do you know that cost of one marketing strategy isn’t eating all the profit of another? You need to know that each penny of your marketing budget is bringing in an acceptable return on investment so that your business grows and stays profitable.

Too many business owners fail to test and measure their marketing, and end up spending way beyond their budgets or leave heaps of money on the table. I find that there are three reasons for this:

1. They don’t know how to test their marketing
2. They think the testing process is too time-consuming or complicated
3. They don’t know how to evaluate their results or make decisions based on them

Let’s get started and make sure you don’t fall into any of those categories.

In this E-Class we will cover:

• How testing and measuring relates to your bottom line and business growth
• How to test and measure on a small scale before you go big
• How to track responses on your marketing campaign
• How to split-test your marketing
• How to evaluate your results and make decisions
• Campaign rate of return and break-even analyses

Testing and measuring is an overall, ongoing system or habit that you need to implement in your business.

You need to consistently test and measure your marketing to make sure you don’t make mistakes that cost you money. You also test and measure your marketing to make sure you’re making the most money possible from each marketing strategy you execute. Since you should measure every time you market your business, you will need to have an ongoing system integrated into your business operations.

There will need to be a clear system for tracking responses and sales, and attributing each to a specific campaign. You will also need to make evaluating your results and making changes based on them a regular part of your weekly or monthly routine.

This may be as simple as a tracking sheet placed at every point of sale and phone in your business. It could be as high-tech as a web-based lead tracking system like SalesForce. Either way, you need to use a system that works with your business. Sometimes it’s as simple as getting into the habit of asking every customer how they heard about your company.

Your marketing strategy or campaign will never start out perfect – it will be a constant work in progress. The only way you’ll be able to establish what you’re doing right and what you’re doing wrong is to test and measure the results. When you make these tweaks, one at a time, on an ongoing basis, you will leverage your marketing to get the best possible return on investment.

You can learn something from every mailing, ad, newsletter or promotion, but if you fail to test and measure you’ll run the risk of making mistakes that cost you money, and repeating them.

Always test and measure your campaign ideas on a small scale before you go big.

Like I said, none of your marketing strategies start out perfect. To perfect them and maximize your return, you need to test and measure your results. This means all you perfectionists need to just dive in and start your campaigns instead of waiting for the time to be perfect or for yourself to be absolutely sure of the results.

This is a straightforward strategy when you run regular advertisements in the local paper, mail to your base of existing customers, or are thinking of a cool promotional idea. However, if you’re about to embark on a big marketing strategy and make a big investment, it’s best to test on a small scale before you commit to a large campaign.

Failing to test on a small scale before you go big will put you at risk of blowing your entire marketing budget, and having nothing left but a flopped campaign. You need to take a small portion of that budget to test your idea, and then evaluate the results to determine if it’s worth committing the rest of the budget to it.

Depending on the size of the strategy, I would recommend testing with about 10% to 15% of your overall budget. Here are some suggestions for small tests:

> Direct Mail. From your direct mail list, choose at random 10% of the contacts and send your mailing to that 10% first. Then measure the results, and make changes based on the response rate and sales generated. You may wish to split test if you need to evaluate the impact of your offer or price point and compare the response.

> Website. If you’re creating a website or redesigning the one you have, start by creating a simple splash page or a simple five or six page starter site. Then track your website hits and which pages your visitors are click on most often. This will tell you which areas of your site you need to invest the most time on.

> Advertisements. If you’re planning a big ad campaign in multiple publications, try testing your headlines and offers on a smaller scale in smaller or less expensive publications. If you were planning a series of ads in the same publication, try measuring the impact of one to see if the rest of the series will be worth the investment.

Remember that it can be difficult to get a true understanding of the impact of a big campaign when you’re testing small because often prospects will have to see your messages multiple times. The cumulative impact of a campaign can’t be measured over the short term. However, small tests will allow you to see if a campaign is going to be a big flop, or if you can tweak it to have more power.

Use this process to track, test and measure each of your marketing campaigns.

1. Conduct a break-even analysis to identify the results needed to recover cost and make an acceptable profit.

Before you a run an ad or a campaign, it’s essential that you work out exactly what response rate you need to recover your costs and turn enough profit to make the campaign worthwhile. This will prevent you from running campaigns with a low chance of success.

What should I target as a response rate?

While response rates will vary dramatically, it’s best to be conservative. If you require a high response rate – anything about 20% as a rough guideline – to break even, the campaign runs the risk of costing you money.

Once you begin tracking and measuring response rates on all of your marketing initiatives, you will gain a better understanding of typical response rates for your company, target market and industry. You can base target response rates on averages of these figures.

How do you know if your profit target is ‘acceptable’?

Profit targets will also vary by ad, campaign and, of course, business type. You need to establish what a realistic figure would be for your business, taking into consideration your average revenue and the relative cost of the campaign.

For example, it would be unrealistic to try to double your revenues in a month with a single advertisement, but a 10% increase with three advertisements may be a more attainable target.

Also consider the relative cost of the campaign. If you’re spending £5,000 on a direct mailing, £100 in profit doesn’t justify your time investment or make the campaign worthwhile.

Use this simple break-even analysis to plan for an advertisement, direct mailing or entire campaign.

A break even analysis will tell you how many sales you will need to generate to recover your costs and turn a profit.

1. Costs: Determine the total costs involved in your offer, both fixed and variable.

£ fixed costs + £ variable costs = £ total costs

1. Profit: Assess how much profit you generate per average sale or transaction.

£ average sale x % profit margin = £ profit per sale

1. Break Even Point: Calculate how many transactions you’ll need to break even

£ total costs / £ profit per sale = # sales to break even

So, if I’m considering running a direct mail campaign, my calculation would look like this:

Now, to figure out if the campaign response target is realistic, I include the total number of mailings to calculate the percentage response rate.

# break even point / # total mailings x 100 = % response rate

So, if my direct mail list included 250 people, the response needed to break even would be 29.2%, which is too high for a break even point. I’d need nearly 30% of my recipients to buy before I even started turning a profit. If the mailing list included 5000 people, the break even response rate would be much better at 1.46%

2. Implement coding and tracking systems in your marketing campaigns.

While testing and measuring is not an exact science, there are ways you can build coding or tracking systems into your marketing campaigns to make it easy to see where your leads and customers are coming from.

Each time you design an ad or create a direct mailing, think about how you will be able to tell when a customer purchases in response. Here are some suggestions for “coding” your marketing strategies so you can track their results in your tracking systems:

• Count the number of people who walk in your store to track retail traffic before and during a campaign.
• Compare sales figures before, after and during a campaign. Remember that advertising can have a cumulative effect, so don’t be surprised if results spike after the third campaign in a row.
• Print a coupon as part of your print advertising or direct mail. Offer a discount or free product and require customers to present the coupon to receive it. If you advertise in several places, put a different code or number on each publication and you’ll see which publication generates the best results.
• Give an incentive for disclosing their source. Give them a reason to tell you what ad or strategy they’re responding to: “Mention this ad and get 5% your next order.”
• Dedicate a phone line or extension to each campaign. If you do a lot of advertising, publish a different extension for each ad. When a customer asks for “extension 53” you’ll know which ad or direct mailing they’re responding to.
• Compare website traffic before and after a campaign. Use Google Analytics or ask your web host for a report on the number of hits on your site by day, week or month. Do the same after or during a campaign and compare.

Use a tracking sheet to log leads and customers.

Ask every customer who visits your store or calls your business where they heard about you. If you have contact forms on your website, include a “where did you hear about us?” box. Make it a part of you and your staff’s conversations with customers.

Use a simple tracking sheet like this to keep tabs on where your customers are coming from. I suggest keeping a sheet like this by your point of sale system and by the company phone, and using one per day or per week. This will give you an easy at-a-glance idea of how your strategies are performing.

3. Split-test your marketing to compare the impact of two offers, headlines, or other elements of a campaign.

Like I said above, no form of marketing is perfect from the beginning. You need to test and evaluate your strategies to determine which is the most effective. This goes for entire strategies – like direct mail – or elements of that strategy – like offers, colour, headlines, font, layout or price. You can always improve your marketing by tweaking the details.

You can use split testing to test two elements at the same time, and see which is most effective. When you measure your results, you usually will find that one works better than the other. Then you can ditch the ineffective one, and go on to test another element, or test the successful element against another version.

For example, if you want to test offers in your direct mail, you would send one offer to half your list, and the other offer to the other half of your list. Then, when customers call or come in store, you see which offer they ask for. The offer asked for most is the strongest one. If you’re happy with the results, move on to test headlines. If not, test the successful offer against a new one.

4. When you’re testing your marketing, only test one detail at a time.

Like any good science experiment, you can only test one variable at a time to measure its impact. So if you’re testing your headline, you can’t test your offer or your price. Otherwise you won’t be able to evaluate which of the two changes generated the change in results

So, if you run a regular advertisement in a magazine or newspaper, only change one element of that ad and measure the difference in response or sales. If sales go up, keep the change and test another element. If they don’t, try another strategy.

5. At the end of the campaign or advertising period, calculate the campaign rate of return or ROI and analyse your results.

Calculate your return on investment for each campaign or ad you run.

To calculate your campaign rate of return as a percentage, divide your profit by your total spend and multiply by 100. You can also simply subtract your investment from you profit and get a dollar value.

£ profit (after costs) / £ investment x 100 = % rate of return

£ profit – £ investment = £ return on investment

So, if your ad campaign costs you £10,000 and after three months it has generated 190 customers with an average sale of £1,000, and a profit margin of 50%, your calculation would look like this:

[(£1000 x 190) x .50] – £10,000 = £85,000

or

[(£1000 x 190) x .50] / 10,000 x 100 = 950%

This figure will vary depending on the campaign and the business. Generally, a figure that is between 10% and 15% of your sales is a reasonable target. So if you typically bring in £150,000 in gross revenue per month, a healthy expectation for your campaign would be to bring in about £15,000 to £22,500.

Remember that a successful campaign is one that makes you money – not just generates more inquiries or leads – so make sure there has been some increase in sales.

Evaluate and analyse your results to make decisions and draw conclusions.

Once your campaign is over, compile your tracking and sales sheets and evaluate the results. Make sure the tracking and sales are captured over the same time period, and break your chosen time period down by week (if you’re looking at the month) or the month (if you’re looking at the quarter or year). This will give you an idea of how the campaign performed over time.

When you have your results in front of you, ask yourself some of these questions to analyse them and draw conclusions. Then, make decisions about changes you could make to further enhance your results.

• Did I hit my target response rate?
• Did I hit my target return on investment?
• Is the return on investment acceptable?
• Did I make money on this campaign?
• Which (headline/offer/guarantee/layout, etc.) generated the best results?
• How do these results compare to other forms of marketing?
• How do these results compare to past strategies and campaigns?
• What can I split-test next?
• Will I run this campaign or strategy again?

Testing and measuring is the only way to make the most of your marketing campaigns and avoid repeating costly mistakes.

Like I said before, it’s just a matter of getting into the habit of budgeting for and evaluating each campaign you run. Once the systems are in place, it will take very little extra effort and you’ll really see the difference in your marketing budget and in your revenues. You can’t afford not to.

Coming up next is a two-part E-Class on social proof, or testimonial marketing. The thoughts and opinions of your customers have incredible power over the decisions that your prospect makes over the course of the sales process.

I’m going to show you how to collect and use testimonials to boost your conversion rate.

Until next time!