Power Direct Marketing: The Book
How to Budget for Direct Response Programs
Let’s begin by including some ways not to set your direct marketing budget:
- "We spent what was spent last year. If we did anything else I’d have to explain it."
- "We matched the competition."
- "We relied on the agency’s suggestions."
- "We separated all the parts, assigned a figure, and added it up."
In direct response the product/service category hardly matters in setting a sound budget. Budgets that work are those that are based on your objectives and timetable. Those that are less likely to work are those that are thrown together—the SWAG approach.
By beginning with specific objectives for your direct marketing program—knowing the numbers you are aiming to achieve—it will make setting the budget just that much easier. And more likely to be on target because your objectives are numeric.
How much should you invest? I don’t know. How should you determine what to invest? By answering these questions:
- What is your product? Business or consumer?
- What percent response can you expect to your best offer?
- What dollar value can you expect from your "average" order?
- What is the competition doing?
- What is your markup? The spread you have to work with?
- What will the marketplace accept?
- Is your product a new product introduction, a standard of the industry, a commodity, or mature?
- Where are you in the marketing cycle of this product line?
- What additional offers can you make to your customer base after acquisition?
How much should you invest? It all depends. It depends on many factors. Food service works on small margins and high volume. Luxury items have more to play with.
In direct marketing budgeting the elements to be concerned with are these:
1. The cost of reaching your audience
- the total dollars invested
- the cost per thousand
2. The response generated from your audience
- the total number of responses
- the number of responses per thousand
3. The promotional cost per response
- the cost per lead or inquiry
- the cost per order or sale
Most business-to-business manufacturers budget somewhere in the 2%–5% of sales range. Those in mail order from 20%–30% of sales. I have worked on projects where we spent less than 1% of projected sales to over 50%. It all depends.
What should you include in your budget? Everything that fits! All promotional cost. These can include:
- Trade shows
- Print advertising
- Public relations for this program
- Direct mail
- Telemarketing
- 800 number
- Sales support and fulfillment materials
- Point of purchase displays
- Premiums and advertising specialties
- Postcard decks
- Radio and/or television
And anything and everything you plan to include as part of this direct response effort.
What should you NOT include? I recommend that all sales, sales staff, and sales service costs—mostly people and related expenses—NOT be included in your direct marketing budgets. They need their own budgets, their own controls.
In most cases you’ll have no difficulty separating sales from marketing. Sales management will recognize, as you do, you are talking 2 different disciplines. Marketing is an activity that directs the flow of your business. Sales is to work that activity and gain a close—get the order. They belong in different budget categories. Don’t mix them—you’ll both regret it.