How to STOP Flushing Your Money Down the Toilet!
Shortly after my wife and I celebrated our 10th anniversary, we decided to upgrade our life insurance policies. As part of the process, I had to go through an entire physical. My heart rate was great, blood pressure was in range, and even my cholesterol was where it should be. The big surprise was my weight.
I gained over sixty pounds during our ten short years of marriage!
I could have guessed that I had put on a little weight over the years, but I had no idea it was that dramatic.
In retrospect I realize now that my biggest problem through all those years (besides my diet and lack of exercise) was that I never weighed myself, I never took time to measure. Simply buying a scale and weighing myself—taking a daily measurement made an incredible difference as I worked to lose weight. Obviously I had to improve my diet and my exercise habits, but measuring my progress on a regular basis allowed me to constantly evaluate how I was doing, and make the necessary changes to be successful.
Measurement is a key to success. Only through measurement will your organization know if it is being successful. There are obvious things like sales, headcount, and budget. What about some of the less obvious things? Does your organization measure employee effectiveness and engagement? Does each employee understand how their job contributes to the overall success of the organization? Are they working on the projects that matter and make a difference? Does your organization measure customer satisfaction? Imagine if you discovered that when customer satisfaction went up, sales increased as well. Wouldn’t you do everything possible to increase customer satisfaction? Then again, how would you ever know unless you are measuring?
Here is a real-life business example from an organization I had the opportunity to work with. The company decided that their goal was to attract new customers from within the existing trade area. Specifically, they planned to do this by advertising at the local university football game. The promotion stated that if the home team scored more than thirty points, fans could redeem their game ticket for free merchandise.
Four problems plagued the promotion…
First, the promotion left the probability of success to outside factors (scoring more than thirty points). The team did not perform well and only scored more than thirty points in the last two of six home games, potentially cutting the effectiveness of the promotion by two-thirds.
Second, the promotion functioned as a buy-one-get-one-free. This is marketing-speak for fifty percent off of two things—not an effective way to increase revenue. At least twice as many people had to purchase for the company to profit from the promotion.
Third, the promotion was aimed at getting new customers in the existing trade area. This is one of the lesser effective means of creating more revenue. Randy White, CEO and President of White Hutchinson Leisure and Learning Group explained that there are various ways for an organization to grow. In increasing degree of difficulty and in decreasing degree of return on investment of money and effort, they are:
- Lower the customer defection rate
- Increase how often existing customers purchase from your business
- Increase the amount existing customers spend during each purchase
- Attract new customers from within the existing trade area
- Expand the geographic reach of the trade area
The promotion was chosen from almost the least effective way to increase revenue, and nearly the most expensive.
The fourth mistake that this organization made was that the promotion was not measured. It was simply perceived as successful and a great way to get “name recognition,” "create awareness," and be “top of mind.” There was no comparison made between how much money was spent versus revenue that was gained from the promotion. Perceiving the promotion to be a success, it was repeated again the following year.
After the second year someone wised up and found that the organization spent over two percent of their annual revenue (the entire marketing budget in some places) to pay for this promotion. The promotion itself only brought in thirteen percent of what was spent. In other words, for every dollar spent on the promotion, the business made thirteen cents. After what was considered a colossal failure (twice) the marketing team came together and worked on a new promotion.
This time around, a very specific goal was set to increase how often existing customers purchase from the business (number two on White’s list). Research showed that existing customers averaged one purchase from the business every four months. The goal was to cut that time to three months, so the goal was stated like this. In one year, seventy-five percent of existing consumers will move from purchasing from our business once every four months to once every three months.
The plan became a rewards program that would offer a small discount after three purchases, a larger discount after three more purchases, and a free product after four more purchases (for a total of ten).
After six months, the program was evaluated and over fifty percent of the existing customers were now purchasing once every three months. After six more months, the promotion was measured again. Almost eighty percent or customers were purchasing once every three months, and approximately twenty-five percent were buying more often. A small niche of almost two percent of customers began purchasing almost weekly.
Once the goal was met, the program continued with confidence. Additional thought was added to what could be given to reward returning customers so as to avoid repetition in the program. Interestingly, the program was only marketed in-house to customers as they were purchasing, so the only cost incurred was for the rewards. The cost of the three combined rewards was approximately eleven percent of the total ten purchases, meaning each dollar spent on the promotion, brought back about nine dollars in return. The ROI for this second promotion was over sixty times more effective than the first.
It is true that measuring the first promotion couldn’t have changed the football team’s inability to score thirty points in a game. Measuring the success would also have no effect on how many people took advantage of the promotion when the condition was met. However, measuring the supposed success of the promotion would have prevented this organization from flushing their marketing budget down the toilet two years in a row.
Similarly, regularly measuring my weight could have prevented me from a lot of extra work and effort to shed some excess weight. About a year after the physical I mentioned at the beginning of this post, I managed to lose almost seventy pounds. Nonetheless, I could have been living healthy all those years if I had only taken the time to continually measure success.