Promotion and Return on Investment (ROI)

Getting your money’s worth. Bang for your buck. Show me the money. And a dozen other ways to say it… Return on Investment.

The number one factor in any decision to spend money on promotion—will it make you more money? And the next obvious question – how can you tell if your promotion is working?

Correctly Calculating ROI

The simplest way to calculate ROI on a promotion campaign is to firstly look at what is one active client, customer or patient worth to your company over the next year.

Example 1: Beauty Salon

Let us take an example of a beauty salon. Say that one regular client who comes in every few weeks for pedicure and manicure and spends about $80 a visit every 6 weeks. That is $80 for 9 visits over 12 months. So that one client spends about $700 just on manicures and pedicures for the year. What if that one client starts bringing in her daughter, her mother, her sister or her friend with her? That could mean $1400 a year for that one original, active client.

Now let us say the spa owner spends $500–$1000 a month mailing to her existing clientele of 1000—either a monthly postcard of specials or newsletter with tips and specials—and that it keeps 50 clients on the books and active who potentially would have been distracted by other salons with special offers or who just plain forgot to get their nails done. If you do the figures you will see that that is $35,000 of additional income in one year for retaining those 50 clients—even if those 50 who were retained never did refer their friends!

Example 2: Chiropractic Office

A chiropractic office made $380,000 last year. It had 683 individual patients who came in throughout the year:

$380,000 ÷ 683 = an average value of $556 per an active patient

The office has a list of 1985 patients who have received treatment over the years. The office starts sending out a monthly newsletter at monthly cost of 70 cents per a patient ($8.40 a year). As a result they reactivate patients and gain new patients through referrals and end the year with 827 active patients for the year.

827 × an average value of $556 per an active patient = $459,812

That’s an increase of $79,812!

Your Most Valuable Resource

The list of clients you have built up is invaluable. That is the list of people who will spend the most and refer the most. That list is the one list where you have a definite edge over the competition—everyone on the list knows you!

It is absolutely your number one resource to guarantee future income. All you have to do is keep communicating to that list and keep maintaining the list (updating and adding to it). But even if the list is not up-to-date we have services to help you get it cleaned up and track down the new addresses and even add emails and other contact details to the list, if necessary.

But even if you don’t update it, reactivating people by doing a mailing is still more important than whether or not the list is up-to-date. Why do I say that?

Let’s look at the salon again. Let us say that that the salon has a list of 1000 people who have taken services with them. The list is out-of-date and 200 names are wrong. They do a mailing for the month that cost them $800 and therefore $160 worth of printing and postage was wasted on bad addresses. As a result of the mailing (per our earlier calculations) $2500 was made just in that month by reminding people to come in. And as a result of doing the mailing they found out which addresses were bad and took them off the list so next month they don’t waste any of their printing and postage money. And, once again, make an extra $2500 the following month because they reminded their clientele to get their beauty treatments!

Momentum

Another factor to consider is that as that salon does regular mailings they accumulate more and more referrals, build more loyalty. Clients receive their mail but don’t act immediately. They put the newsletter or postcard aside, or on the fridge because they do plan to get a manicure sometime in the future. And you keep mailing them. Without a doubt, as these regular mailings are going out, a higher and higher percentage of clients will be coming in as a result of your mailings—even if they never mention or even realize that they are coming in because they were consistently being reminded to do so!

So, in summary, use a monthly postcard or newsletter to stabilize your income by sending out regular mailings to your list and increase your income by maintaining and growing that same list. How important is this? I would rank it above your advertising and promotion for new clientele—-because it costs a lot less money to keep a client than it is to get a new one:

• A mere 5% reduction in customer defection rate can result in increased profits of 25-125%.
• An existing customer spends an average of 67% more than new customers.
• It costs 7 to 9 times more to acquire a new customer than it does to retain an old one.

—The Harvard Business Review and Forrester Research.