John Audette, president of Multimedia Marketing Group, a Bend, Ore., Internet marketing company, has long pushed the idea of marketing based on a return on investment. So I decided to ask Mr. Audette how he calculates ROI. In the process of answering, he revealed the daunting math facing most Web marketers and the secret to making your effort a success.
First, getting an ROI from a Web effort takes a real commitment to the medium, he says. Evaluating a single event, such as a Web banner or mass e-mailing, usually yields disappointing results.
So Mr. Audette asks potential clients two questions. First, what is their "allowable," the most they can afford to spend in order to gain a customer? Second, what's the lifetime value of a customer?
"We are continually amazed at how few companies have a handle on either one of these," he says.
Once those figures are available, Mr. Audette works backward to set a budget. He often bases that on what he calls the "Rule of 10,000."
If your ad gets a click-through rate of 1%, and 1% of those who click through buy--or take some other action you want, such as submitting a loan application--then you're getting one action for each 10,000 impressions, he says. To make 100 sales, you may need 1 million impressions.
"This means generating a positive ROI requires a high allowable," he says, and a high lifetime value for each new customer.
This is when the lightbulb went off in my head.
When you go through Mr. Audette's "Rule of 10,000," you can see how the Internet revolution really hits your business operations. Most marketers understand the process that runs from prospecting to closing a sale. Customer loyalty is usually someone else's department.
But with the Internet, this doesn't have to be the case, if you really understand the message of the year's most important book on Internet marketing, "Permission Marketing," by Seth Godin.
In the six months since Mr. Godin's book came out, permission marketing has become the most overused, and misunderstood, buzzword in the online world. Permission marketing, it seems, has become synonymous with e-mail marketing.
So I reread the book. I learned that permission marketing doesn't mean getting permission to spam your customers. It means rewarding people for their attention, working to make purchases automatic and treating that permission as an asset.
You're already familiar with permission marketing, in the form of such things as frequent-flyer miles, book and record clubs, and the automatic refilling of your office watercooler.
The more automatic a buy becomes, the more permission your customer is giving you, Mr. Godin writes. Thus, a personal relationship is more important than a brand--you probably trust your dentist more than you trust the promises of Texaco gasoline.
All the tenets of permission marketing are aimed at increasing the lifetime value of a customer, the figure Mr. Audette calls the key to ROI. Carefully targeted e-mails can build a personal relationship with a customer, Mr. Godin writes, but only if that e-mail has a rational basis.
Many companies go wrong online by treating the sales process as a seduction, Mr. Godin concludes. It's actually a date. An online marketer's aim should be to build this relationship into a marriage, not just to score a purchase. That is the key to ROI.
Dana Blankenhorn is a free-lance journalist who specializes in Internet issues and is publisher of the Web site www.a-clue.com.