Chapter 58
Direct Marketing Profit Goals

When setting a direct marketing campaign profit goal, the marketing team must estimate the number of direct marketing communications to achieve the goal.

The formula for direct marketing profit goals uses target profitability levels to determine the number of direct marketing communications. The formula is nearly identical to that for direct marketing revenue goals, except that the denominator includes the target profit percentage, as follows:

Where

DMPG = direct marketing profit goals

Rt = revenue target

Sa = average sale

P = profit goal in percentage terms

Rr = response rate

Cr = close ratio

Continuing with the example of our marketer selling automobile supplies from Chapter 57, let’s assume that her target profit margin is 30%. This factor is added to the formula as follows:

The impact of this on the cost of the marketing campaign is significant. If, as we discussed in Chapter 57, the marketer was to create an offer that would yield a 5% response, then it reduces the size of the required marketing to 118,519 pieces to achieve the same profit target.

The benefits and risks are similar to those with direct marketing revenue goals. Whether or not a particular profit goal is feasible for a given business will be partly determined by a profitability analysis for its industry and a keen knowledge of the competitor dynamics. While a marketing campaign may generate revenue, the challenge is whether it is profitable. Marketers determine spending allocations based on overall company and marketing budgets. For a new product launch, a marketer may decide that revenue generation is more important than profitability, driven by the goal to develop awareness and share quickly. This may even be acceptable for several concurrent marketing programs within the context of an overall marketing plan, since a profitable performance for the entire company is generally more important than success with any specific product line. However, marketers must think carefully how to transition from revenue growth to profit growth as products mature and customers change. The direct marketing campaign should include profit targets as a result.

The data for determining direct marketing profit goals will be based on performance tracking as captured by company sales and financial reports.

iPhilippe Graner, Data Drive: Planning for Profitability, Target Marketing, March 1, 2011. Retrieved May 3, 2017 from http://www.targetmarketingmag.com/article/determine-your-marketing-campaign-s-profit-generating-response-rate-breakeven-analysis-417197/all/; T. Egelhoff, “Direct Marketing: Why it Works and How to Use it,” Smalltownmarketing.com Retrieved May 16, 2017 from http://www.smalltownmarketing.com/formula.html