How to track and test campaigns to optimize your ROI

To optimize campaign results you have to track and test results. Testing allows you to find errors on a small scale and make corrections before rolling out the entire campaign. For example, if you're planning to mail a sales letter to 100,000 names, test it with a mailing to a smaller audience of 5,000.

According to Claude Hopkins, test results will closely mimic those that the campaign will generate. So, if a test mailing to 5,000 names generates new customers at a cost of $25 each, when you mail to 100,000 names the cost per new customer will remain at $25. If your cost per new customer is too high, you have an opportunity to make changes and continue testing until results are optimized.

"The more test results you have, the more sound your decisions" - Danny Hatch

The most important elements to test are the mailing list, offer, headline, envelope teaser, and guarantee.

Start with the mailing list. It's the most important variable to test: if your package doesn't reach your target audience it will fail no matter how great the copy is.

According to Steve Roberts, CEO of Edith Roman Associates, when testing your list:

o Use the same quantity of names for every list you test. Frequently this means 5,000 names, since many list owners will not rent smaller quantities for testing.

o Use your own customer file to profile against prospecting lists. Segments that have the greatest match are most likely to produce the best response.

o Always test the hotline names (the most recent segments of the list) first. If they don't work, no segment will.

For more on list testing, read Steve Roberts's article, "Indisputable Laws of List Testing."

"Make your offer so great that only a lunatic would refuse to buy" -Claude Hopkins

The second most important variable is your offer. In fact, the offer is so important you should spend at least as much time on it as you spend on your headline.

Gary Bencivenga suggests trying free shipping, free sample, free trial, free information, free estimate, free consultation, free gift, and free "money" from coupons or discount certificates. The one constant is the word "free". Giving away something for "free" reduces your prospects' risk, making it easier for them to say yes.

Clayton Makepeace takes it one step further. He suggests you test at least one component of your offer in every mailing. You can test your premium titles, payment options, and guarantee (for example, should the guarantee copy be longer, or should the guarantee itself be stronger).

80% of the Sale is Your Headline

The headline can have a tremendous effect on the results — it's sole job is to grab the reader's attention and get him to read the body copy.

While most copywriters believe that the headline is 80% of the sale in direct mail, that's only true in space ads. David Ogilvy states that in direct mail the format is even more important than the headline.

"Tests have shown that varying the outer envelope can increase or depress response rates by 25% to 100%" - Bob Bly, Copywriter

In addition to testing two different teasers, you can also test a teaser against a plain envelope. Also, don't forget the back of the envelope. That's expensive real estate that can be used for copy when appropriate.

Testing Methods

There are two types of testing, A/B split testing and the Taguchi Method. In the case of direct mail, A/B split testing is done by sending out two letters, sometimes simultaneously, to test one element of the letter. Perhaps letter "A" is testing one headline and letter "B" is testing another. The letter with the headline that generates the most responses becomes what's referred to as the control. Other elements of the letter, such as the offer, can also be tested against the control.

A/B split testing can only test one element at a time, while the Taguchi Method can test multiple elements simultaneously. Taguchi finds what combination of the different elements will have the strongest probability of pulling the most responses. According to Forbes, Dell, Inc. used The Taguchi Method for an e–mail campaign that had 11 different ad elements and 10,365 possible combinations. The Taguchi algorithm selected 18 of the combinations.

Randomly selected e–mails were then sent to 18 test groups consisting of 2,000 people each. The response rate was analyzed and the most compelling features were used to create an e–mail that was sent to 150,000 customers. ¹ Unfortunately, The Taguchi Method is expensive, costing up to $150,000 per project.

Analyzing Results

For A/B split testing, the following formulas are used to analyze campaign results:

Cost per Lead

How much did each lead cost.

Formula: Total cost of the campaign divided by the number of leads generated.

Conversion Rate

Determine how many leads converted into sales.

Formula: Number of sales divided by the number of leads.

Cost per Sale

How much did each sale cost.

Formula: Total cost of campaign divided by number of sales.

ROI (Return on Investment)

How profitable was the campaign.

Formula: ((Total number of pieces * response rate * conversion rate * average sale amount) - total campaign cost) / total campaign cost.

For a shortcut, use this ROI calculator to determine future and current results of your promotions.

The importance of tracking and testing can not be overstated. It eliminates the guesswork; lets you optimize results from every marketing dollar you spend; and provides the data needed to justify your budget -or budget increase.

References

¹Kellner, Thomas, "Reengineer That Ad", Forbes, 23 May 2005, 89-90