Calculating the Marketing Allowable – Or How Much to Spend on Marketing

Before starting a direct marketing campaign, managers often wonder, “How much should I spend on the actual marketing costs?” There’s actually a way to calculate this figure. You don’t have to guess, leave it to chance, or the whims of the accounting department.

Called the marketing allowable, this figure is a form of sensitivity analysis that gives you a good guestimate of the amount left to spend on marketing after the major costs are accounted for.

In order to calculate the marketing allowable, you’ll need a few numbers handy:

  • Net sales. If you don’t have your net sales figure, take your gross sales and subtract out the returns. That’s your net sales.
  • Variable costs: To figure out your variable costs, add together the cost of good sold by percent of orders, the fulfilment cost as a percent, and the bad deby percent, then multiply it by sales. Did your eyes just glaze over? Take a deep breath. You should know your cost of goods sold. If you don’t know your fulfillment costs, use a placeholder. Twenty percent (.20) is not unrealistic.
  • Overhead costs
  • Premiums: If you give away little items with every sale, like a free exercise DVD with the purchase of a home gym system, the DVD is the premium. The cost to make each is the number you’re going to use to determine your marketing allowable.

Marketing Allowable: The Formula

The formula to calculate the marketing allowable looks like this:

Net Sales

- Variable Costs

- Overheard

- Premium

= MARKETING ALLOWABLE

What It Looks Like with Real Numbers

I’ll plug in some numbers now from a real client, who has graciously given permission for me to use their numbers as long as I don’t mention the name of the business. It’s a small, family owned e-commerce business selling gift items.

Net Sales: $48,000 (rounded out for our example)

- Variable Costs: $11,000

- Overhead: $28,000

- Premiums: $1,000

Marketing allowable: $8,000

So technically, this client is “allowed” or can spend about $8,000 on direct marketing to obtain $48,000 in net sales. Remember that I kept the numbers small and nice and round so they would be easy to follow. In truth, a company generating these revenues would need a much higher net sale figure to pay a salary – which I’d include in the overhead line as part of the operating expenses of the company.

When to Use Marketing Allowables

Calculating the marketing allowable isn’t just a subtraction and decimals example, even if you have to work some decimal magic on the variable costs line. It’s actually a useful tool for budgeting. if your company does zero-based budgeting, the kind where you have to justify your spend from the bottom up for each fiscal year, you’ll want to know your marketing allowable for the product or product category. You can easily run some figures and adjust amounts in the spreadsheet for the premiums, for example, or the overhead costs, and see how it impacts the marketing allowable.

Remember that marketing numbers are rarely fixed in stone. One of the benefits of placing these numbers into a spreadsheet and playing around with them is watching how changing one line in the formula impacts others. For example, if you can keep your overhead nice and low, look at how much is left to funnel into marketing. And if you could funnel more money into marketing, how many more potential customers can you reach? Conversely, if you up the premium amount and offer a spiffy DVD player with that DVD, you may have less for marketing, but if you test that concept and it pulls in more sales, it can be a winning combination.

Direct marketing is all about measurement. Math is the language of reality, and direct marketing, so heavily based in math, takes nebulous marketing concepts that scare CEO’s and makes them real by adding dollars, cents, and sales to the conversation.

So calculate your marketing allowable today, and play the numbers out. Maybe there’s more in your marketing budget than you thought!

Direct Mail Advertising – Tips And Tricks to Success

Chances are you’ll probably end up using direct mail marketing to advertise your business. This form of marketing can also be effective but also expensive, especially if you don’t know how to make it work. That said, it’s strongly advised that you know the ins and outs about direct mail marketing before you begin.

Here are some things to remember.

Tips On How To Do Direct Mail Advertising

  • Usually, it takes around three to five pieces of direct mail to be sent before you can get a response from clients. Sometimes it even needs more mailing. To be able to get a higher response rate you should have a good list of clients that have a track record of buying products in your industry or whom you know have and existing interest on your products.
  • One tip in order to get a highly targeted direct mail advertising lists is to rent from a reputable broker and the list should have common elements like industry, occupation, location, etc..
  • When you already have a highly targeted list, start making your advertisement. See to it that the headline that you will use will hit the interest of your targeted clients. If you have good copy and a good headline, possibilities of getting 3% to 5% response rate will be achieved from a standard response rate of 1%.
  • Before you send your mail advertisement, do a poll or research to check on the things that are really appealing to your recipients. When you’re doing this the first time, this will be a trial and error process, but soon you’ll finally find out what your target audience would be most interested in.
  • In direct mail advertising it is recommended to use postcards rather than letters. With postcards you can send them easier, you will have the pleasure to writing less, you will also save money on printing. Postcards postage charges are also cheaper than letters so you can send them more often.
  • You should set up a tracking system for you to measure your response rate and to know every single inquiry on the mailer. With this system you will be able to determine whether the inquiries are coming from the first piece of mail advertisement, second piece, so on and so forth.
  • There should be a two-step sales process involved. This is by getting them first to ask questions by making an inquiry and from there, you should take over and drive them to close the sale.
  • Make sure that your direct mail advertisement is date sensitive. This means that you have to make your prospects to respond as soon as possible. Using promos with specific dates or discount coupons with expiry dates are some ways you can make them respond immediately.
  • Start the mail advertisement with just 500-1000 piece in order to give you a feel of the whole process. With this sample, you will know if there are things that need changes like your advertising copy or the list itself. If you are now happy with your response rate, go for bigger investment and more copies should be sent.

Direct mail advertising is an effective tool that you can use for advertising your products. You just have to learn how to maximize your returns and be smart enough in dealing with any issues that arise. By using the tips mentioned above, you’ll be better equipped to get the results you’re after.

Create a Successful Email Marketing Campaign

Like any campaign or marketing effort, there are certain ways you can maximize your ROI. Follow these tips to ensure your email marketing campaign is engaging your audience and providing successful marketing results.

PART I: DESIGN

The design of your email campaign affects your consumer perception as well as the potential engagement from recipients. Some key areas to focus on are:

Theme: The overall look & feel should match your brand image. Any fonts, PMS colors, or graphic elements used in your logo or other marketing pieces should be carried over into your email design.

Style: Use images and ample white space to break up copy and make the message easy on the eye. Images should support content by providing a visual representation of your message. If you’re using a colored background, be sure the contrast between the background color & the copy is dramatic enough to provide clear legibility.

Format: The layout of your email can impact the comprehension of the over all message. The format should be clean, simple, and easy understand.

* Header: You may be inclined to place your logo or an event logo at the top of your email, however, some email clients auto disable images or the reader may be viewing your message on a smart phone that does not enable images. If you’re logo or event title is an image file, it will be lost on these readers. To avoid this problem, write your message title and business name in text at the top.

* Body: Using a side bar menu or too many additional links will clutter your message and confuse your reader about the call to action. Keep the body of your message clean and clear. If you’re creating a newsletter, define different articles or events with graphic dividers and bold title fonts.

* Footer: This is a good place for your logo image as well as contact, subscriber info, and disclaimer.

PART II: CONTENT

The most important goal of your campaign content is to create a message your target audience wants to read about. Your message should be worth saving and or sharing with others. Follow these steps in order to create clear & valuable content.

Determine the Objective: In general there are 3 types of objectives with email marketing-

* Promote: motivate purchases or increase event attendance

* Inform: increase awareness among potential or current customers or for differentiating your brand among competitors

* Relate: build relationships, loyalty, & referrals

Determine the Form: Again, there are 3 types of forms used in email marketing and each has it’s own frequency, content focus, and call to action.

* Newsletters: Regular intervals (weekly/monthly), education info provided in bullets or summary, soft CTA (learn/read more).

* Promotions/Invites/Surveys: Frequency follows sales cycle, limited & direct content, hard CTA (call/sign up now)

* Announcements: Event driven, news, holiday, or thank you oriented, soft CTA.

Valuable Content: The key to a successful campaign ultimately lies in how worthwhile the content is to the audience. Be sure the immediate benefit is clearly defined for your reader. Some ideas for valuable content include:

* Knowledge: Sharing your expertise, use facts & testimonials, give guidance & direction

* Advantage: Discounts & coupons, exclusivity or VIP status, contests & giveaways

* Attention: Acknowledge and response to audience

Keep it Concise: This goes along with ease on the eye- Presenting too much information at once will overwhelm your reader. To prevent burn out and ensure the reader can easily access the information s/he is interested in, follow these guidelines:

* Host large bodies of content elsewhere- link to website or blog, PDF attachment

* Limit to essential info- use bullets, summaries, or links to more info elsewhere

Structure: Getting people just to open, let alone read your emails can be strongly impacted by the external appearance of your message. Key areas to focus on are:

*

* From line: Use a name your audience will recognize. For more targeted lists, this could be a personal name. For broad lists use the brand for both the name & email address, i.e. “[email protected]”.

Subject line: Keep it short and simple, limit to 30-40 characters (including spaces) or 5-8 words. Identify the immediate value/benefit of reading the content. Avoid “spammy” grammar such as all caps and multiple punctuation marks.

Permissions: Always be sure to ask people before you send them your campaign. This can be done with a sign-up sheet on location or an opt-in on your website. You can also verbally confirm permission. Be as specific as possible about the content your reader can expect to receive. It’s generally helpful to provide a preview or past email. Also provide an unsubscribe option; this will prevent you from unnecessary aggravation should a reader no longer wish to receive your emails, as well as show your respect for privacy.

PART III: ANALYTICS/TOOLS

Whether your using your own service provider or a marketing agency to develop your campaigns, reviewing the analytics is an important part of measuring success as well as using the information to grow and improve future campaigns. These are some areas to check regularly to optimize your campaign.

Bounce Rates: A bounce rate is the immediate return of your email. There are two types of bounces which can occur. The first is a hard bounce which indicates a permanent error with the email address, i.e. a spelling error or deleted address. If the address no longer exists, the contact is most likely no longer there. This provides an opportunity for you to create a new contact with that company as well as find the old contact and acquire business with his/her new company. Alternatively, a soft bounce is a temporary server issue, i.e. recipients inbox is full or the message was identified as spam & blocked. Generally if the email is re-sent at a later time the message will get through.

Open Rates: Open rates track the interaction with your email, not the delivery. It’s tracked by two codes hidden in your email. One is placed in the body, the other is in the embedded image you might have (i.e. logo). A key note here is if images are not enabled by the user- whether the function has been turned off by the email provider or the reader is viewing the email on a text only phone- the email will be marked as unopened.

Click-Through Rates: Click through rates identify how many people have clicked a link provided in your email and arrived at the designated page. You can use this information to determine which article or topics are of the greatest interest and which you may want to eliminate in the future. You can also create a list of contacts interested in a particular topic, so that you can direct future emails on that subject toward them in the future.

Function Scan: This is a great preventative tool to use before you send out your campaign. It scans your message to test for link and image functionality, as well as evaluate your subject & content for “spam-like” properties, so you can prevent errors which may deteriorate your message.