ROI Calculation

[grod]

I did a fair amount of Direct Mail lead generation this past year, for MAPD, Med Sups, and FE. I tracked the sales/commissions to each campaign. I am trying to determine if I should concentrate in one particular area based on the ROI for each.


Can someone please share how they calculate ROI? Also, given what we know of "typical" retention of clients in each of the categories, does it make sense to factor that in to get a true ROI?

 

[azmedsupagent]

I do not factor commission for years 2 or after when calculating my ROI. Although my overall retention is over 80% over a 5 year period I calculate my ROI on a monthly basis. This allows me to closely monitor any fluctuations in profitability for a particular marketing method. You will notice an up or down trend faster if you track ROI month to month based on first year commission only. Also, you should only calculate ROI on what you have actually been paid on since your 2nd year commissions haven't actually happened yet. The further out that you forecast your ROI projections the less accurate your projections will be.

If I spend $2000 in marketing and generate $5000 in first year commissions then my first year ROI = first year commissions-marketing expense/marketing expens, in this case it would be 5000-2000/2000= 150% ROI.

If I want to calculate ROI for the full year than I simply use the same equation with total annual marketing cost and total first year commissions earned over the last 12 months instead of just the figures for one month.

 

[grod]

I do not factor commission for years 2 or after when calculating my ROI. Although my overall retention is over 80% over a 5 year period I calculate my ROI on a monthly basis. This allows me to closely monitor any fluctuations in profitability for a particular marketing method. You will notice an up or down trend faster if you track ROI month to month based on first year commission only. Also, you should only calculate ROI on what you have actually been paid on since your 2nd year commissions haven't actually happened yet. The further out that you forecast your ROI projections the less accurate your projections will be.

If I spend $2000 in marketing and generate $5000 in first year commissions then my first year ROI = first year commissions-marketing expense/marketing expens, in this case it would be 5000-2000/2000= 150% ROI.

If I want to calculate ROI for the full year than I simply use the same equation with total annual marketing cost and total first year commissions earned over the last 12 months instead of just the figures for one month.

Thank you for your explanation. I understand we all want to get the maximum return for our investment, but do you have an ROI target you shoot for?

 

[azmedsupagent]

Not really, I focus more on my close ratio and my cost per sale. As long as I keep those numbers on target then my ROI will be just fine. My ideal close ratio is 30% and I like my cost per sale to be below $100 for medicare supplements. If I notice an overall downward trend in close rate or an upward trend in cost per sale then I look for something that I'm doing wrong or I find a new marketing method.

 

[grod]

Not really, I focus more on my close ratio and my cost per sale. As long as I keep those numbers on target then my ROI will be just fine. My ideal close ratio is 30% and I like my cost per sale to be below $100 for medicare supplements. If I notice an overall downward trend in close rate or an upward trend in cost per sale then I look for something that I'm doing wrong or I find a new marketing method.

OK. Thanks. I just plugged in my numbers and I'm at $89 per sale for the same product. So I guess I'm ok. I'm trying to set some metrics and your information is very helpful. Thanks again.

 

[azmedsupagent]

OK. Thanks. I just plugged in my numbers and I'm at $89 per sale for the same product. So I guess I'm ok. I'm trying to set some metrics and your information is very helpful. Thanks again.

An $89 cost per sale is just about perfect in my book, thats a good sign your using the right marketing strategy and closing your leads efficiently. I like to think of my business as an engine. Instead of using fuel, air and spark create forward motion, my business uses money, effort and time to create profit. The trick is to find the perfect mixture of all three to keep things running smoothly.