How to Figure Costs for Your Data Driven Marketing Campaign - dummies

How to Figure Costs for Your Data Driven Marketing Campaign

By David Semmelroth

When evaluating your data driven marketing campaigns, you obviously need to understand their costs. In fact, you need to understand costs even before you execute your campaigns. You have a limited budget and you want to make sure you’re using it effectively.

In most cases, these cost metrics relate to costs that are specifically tied to a given campaign. You typically won’t try to factor in the cost of your salary or the department copy machine into your analysis of marketing campaigns.

The costs you’ll focus on have to do with the production and delivery of your marketing messages. In the case of direct mail, creative development, printing, and postage costs are taken into account. In the online world, development costs, production costs for videos, and e-mail delivery and tracking charges are typical examples of costs that are assigned to campaigns.

Most finance teams are comfortable with partial cost accounting in relation to marketing campaigns. That is, they’re only concerned with the costs directly associated with executing the campaign. There are times, though, when labor or product development costs need to be included.

For example, if a call center needs to add staff to process orders related to a campaign, that cost will often be borne by the marketing campaign. In any case, it’s good practice to get agreement from your finance folks up front about which costs will be included in your evaluation of campaign results.

Database marketers have inherited some traditional cost metrics from the broader disciplines of marketing and advertising. These are very simple calculations that you’ll see (and make) again and again.

An extremely simple but extremely common way of measuring costs is to calculate what it costs to reach a thousand customers. This is known as your cost per thousand, usually abbreviated CPM. The roman numeral M represents one thousand.

How to Use CPM in database marketing campaigns

To calculate this metric, you need only know the total cost of your campaign and the size of your target audience. CPM is then calculated using the following equation:

CPM = 1,000 × (total campaign cost / target audience size)

The phrase cost per thousand is used in slightly different ways depending on who’s doing the talking. Frequently, mail houses and e-mail service providers will quote their rates on a CPM basis. Advertising is often measured on a CPM basis. In both cases, the costs they’re referring to are generally not fully loaded with creative development or production costs. They relate specifically to the cost of getting the message delivered.

Don’t get confused: A similar metric in advertising

In the case of advertising, costs are typically reported based on the size of a TV or radio audience or on the basis of the subscriber base to a newspaper or magazine. This type of reporting is also common in online advertising, when banner ads or popups are purchased, for example.

In this situation, advertisers speak about the cost per thousand impressions. An impression essentially means someone had a chance to see the ad. It amounts to the number of times that an advertisement was put in front of a customer, regardless of whether they actually saw it or not.

For a newspaper advertisement, the number of impressions would be the newspaper’s circulation. For an online popup ad, it would be the number of times the ad popped up.

In these cases, the cost per thousand impressions or CPMI are calculated by replacing the target audience size with the number of impressions, as follows:

CPMI = 1,000 × (advertising cost / number of impressions)

How to use CPM to compare campaigns

The main advantage of CPM metrics is that they make it easier to compare costs among different types of marketing campaigns. Your marketing executives are constantly balancing the trade-offs between different marketing and advertising strategies. CPM metrics give them a sense of the relative costs of reaching consumers through different channels.

CPM metrics all represent costs for a standard audience size of 1,000 consumers. This means they can be compared head to head without having to take differences in audience size into account. They represent a way of comparing the efficiency of different marketing programs.

When using CPM metrics to compare database marketing programs to other marketing and advertising campaigns, it’s important to make sure you’re including the same costs. You may be asked to compare the efficiency of a direct-mail program with a magazine ad. When doing so, make sure that both metrics either include or don’t include costs associated with creative development, for example.

Cost per thousand is no magic bullet when it comes to measurement and comparison of campaigns. But it’s useful. Many marketing and advertising channels have limited ability to track their effectiveness. CPM metrics can be almost universally applied. This means that they’re a core strategic tool.