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Cost-per-Lead/ROI Model Help

Cost Assumptions
Although marketing programs can occasionally have very complex budgets, most expenses associated with a program actually fall into one of three simple "buckets": Management costs, one-time Set-Up costs and incremental costs.
  • Management costs are generally your internal costs for managing the program - an allocation of your management expense (e.g. your time and that of your supervisor) to oversee the campaign.
  • One-time costs are usually paid to a marketing solutions provider (although it can be an internal fulfillment group) for developing or setting up the program. These "overheads" are generally independent of how many targets you go after, or of how long the program runs.
  • Incremental costs are usually volume or time dependent. These costs are often based on the number of targets you go after, or the number of hours, days or months the program will run.
You can do a simple paper-and-pencil (or spreadsheet) calculation to total up the components that go into each of these three expenses, and play with the assumptions until you feel comfortable that they accurately reflect the cost of the program. But you'll need to put each of your expenses into one of these three "buckets" in order to generate a result. You'll also have to translate management time into a dollar cost, which you can do by multiplying hours (or days,) by a loaded rate.

Note that, although both management costs and overheads are one-time costs, they are entered separately in the model because, when you compare different programs, these components can vary significantly. For example, an outsourced program may require very little management time, while an in-house program may require quite a lot.

Anyway, here are a few examples:

Telemarketing Campaigns

Most Telemarketing campaigns that are implemented using an outside vendor have a one-time set-up cost, and an hourly or per-attempt cost. You also have to account for your internal costs (e.g. management time, etc.)

Cost CategoryTypesExamples
Management Costs
(one-time)
Approvals and Reviews
Project Management
4 hrs @ $500/hr
1 day/mo for 3 mo's @ $200/day
One-time CostsProgram Set-Up
Script Development
IT integration
$1,000
$1,500
$2,500
Increment Costs
(variable)
Calling Time
Lists
Pay-per-lead charges
Per-Attempt Costs
$40/hour for 200 hours
$0.30/record for 500 records
$100/lead
$6.00/attempt

The model allows you to input one number for your Management Costs, and one number for your One-Time Costs. But it has two inputs for your Incremental Costs. One input is for the dollars-per-unit (e.g. cost-per-attempt, or cost-per-hour,) and the other is for the number of units (e.g. attempts or hours.) These will be multiplied together to calculate the total Incremental Cost.

To be sure, there are many ways to "cheat" the system, and make one strategy look better than another by ignoring one or another cost element. So it's up to you as to how honest and objective your analysis is. But if you want to really understand which is the best option, it is your best interests to be intellectually honest.

Email Marketing Campaigns

Email marketing can be done in-house or on an outsourced basis, with the variable component being the number of emails sent. If you send multiple emails, run the model for each blast, changing the response rate to reflect the repetition effect, if any.

Cost CategoryTypesExamples
Management Costs
(one-time)
Approvals and Reviews
Project Management
6 hrs @ $500/hr
4 day/mo for 3 mo's @ $200/day
One-time CostsProgram Set-Up
Content Development
IT integration
$5,000
$500
$10,000
Increment Costs
(variable)
Lists
Pay-per-send charges
Bounce-back Removal
$1,000 for 50,000 email addresses
$0.002/email
$2.00/removal

As above, the model allows you to input one number for your Management Costs, and one number for your One-Time Costs. But it has two inputs for your Incremental Costs. You may have to play with the variable components to get an anverage cost, but you can easily adapt this framework to develop an Excel spreadsheet of your own.

Summary

To be sure, there are many ways to "cheat" the system, and make one strategy look better than another by ignoring one or another cost element. So it's up to you as to how honest and objective your analysis is. But if you want to really understand which is the best option, it is your best interests to be intellectually honest.

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