Answer to the Marketing Brain Teaser from Last Entry

Help me. I posed a question to all readers, got a ton of responses, some of which were actually correct and devoid of curse words. ALL were interesting. Very cool to get different perspectives.

Summarized question: “There are four elements in your ‘Marketing Equation’. Two mentioned in the article were ‘incoming leads’ and ‘conversions’ (or commonly ‘closing ratio’). What are the other two?”

Before you read the answer, my intention was to gather the four BIG elements for those of you not running your marketing by formula. I said in the article, “other numbers are just fluff”.

Since I uttered that statement, I’ve been asked to step down by Democrats, Republicans, and the Sham-Wow guy, who is now the Slap-Chop guy. I regret any convenience I may have caused and humbly apologize to everyone except the Yellow Pages.

Admittedly, there ARE other meaningful numbers and I’ve given credit where due.

Here are the winners AND numbers to know in your Direct Response marketing formula, plus another highly insulting remark to the Yellow Pages.

1.Leads generated– only attributable to Direct Response marketing. Direct Response ads have – as their name implies – a lead generation component and are accountable thereto. If you sent out a Holiday Card or TOMA or Retention piece and were hoping to count “leads” as a result, you may as well plant a strawberry vine and start looking for cumquats.

2.Leads converted – Often based on #1 per campaign, but also as a general measure of closing ratio for all leads. I do NOT like blending “all leads” together since a customer calls in as a lead with a 70-80% closing average vs. a ‘first time caller’ with a 30% closing average.

3.Cost per lead – This figures in the media and fulfillment costs and as such, gives you a baseline for measurement. Advertising during the SuperBowl might get you 1,000 leads, but the CPL will likely be rotten. This figure generally runs between $75 and $200, still a potential loser at the lower price (insolvent unsellable prospects) or very profitable at the higher figure. Has to do with transaction size and of course…

4.Profit per sale (I’d have accepted ‘transaction size’ too, since that’s way easier to figure, is more part of marketing than operations.) People often ask, “How many leads should I expect from this campaign?” and there are general numbers (1% from Direct Mail a long accepted but now shrinking ‘standard’) yet even these overlook this more revealing figure. Not only is the list smaller for an $8000 bath remodel for example, it’d take far more $79 drain cleanings to make them equally profitable.
The above is why it is very important to know and use the “Break Even Rate” in direct response marketing, which is revealed below, but FIRST…

The Winners Circle:

There were several correct answers yet the most concise AND correct answer goes to Chris Kowalski who had a 7 word email that said, in its entirety:

1.Cost per lead
2.Profit per closed lead
I like it when people get to the point! All who submitted a correct answer will get a copy of Marketing Secrets. Hope you’ll write us a review!

Yet since I’m completely unfair, biased, and make up the rules as I go along, I’ve decided to award 2 honorable mentions –

The Runners Up:

1.Keith Calicoat wrote, “Decrease acquisition cost per customer and raise the frequency of transaction per customer”, which gets partial credit. Keith also put in, “If I win, I don't want the hot dogs!” Fair enough. That makes two of us.

2.J.S. Woolery from Home Energy suggested “raise average order size”, which is a great way to increase profits NOW from virtually every sale. I still contend that most contractors could increase prices by 10% today, not lose one customer (okay, the cheap ones) and put the entire bump on your paycheck.
BONUS feature today is the Break Even Rate Formula:

A/B = C

(C/D) x 100 = E

(E/F) x 100 = Break even response rate


A= Cost of Direct Response campaign

B = Profit per job/service offered in ‘A’.

C = Minimum job/services needed to break even

D = Average conversion (closing rate) on leads for this type job

E = Number of total leads needed to break even

F = Number of pieces mailed/audience


Obviously, the goal is to exceed “D” and “E” by the largest number you can. Now you know why the combination of these factors rules your fortunes.

I recommend a break even rate on ALL Direct Response ads you do for 2010. But then again, I recommend the slap chop, but only if the Yellow Page ad rep’s finger is in close proximity.

Have an awesome day. Let us help you make it even more of one!