Many happy returns: you can obtain some useful indicators about return on investment (ROI) by focusing on the more easily measured channels such as direct mail. Your reckoning might not be perfect, but it will provide supplemental evidence to justify your marketing expenditures.

• Author: Swartz, Dan

Accurately calculating return on investment (ROI) for financial services marketing is a complex process that requires commitment and dedication. One reason it is so complicated is that certain marketing channels--particularly television, radio and newspapers--are almost impossible to track and measure. Although some may argue, at least to a degree, that this is not the case, the fact remains that in order to track newspapers or broadcast media, the bank has to allocate substantial resources. In other words, it takes a lot of time, money and people, and at the end of the day, there are all kinds of assumption made about the final results--suppositions that are susceptible to scrutiny and debate.

Despite these difficulties, it is possible to calculate a rough but useful marketing ROI by using the more measurable marketing channels, such as direct mail and electronic banking. This can be done through a two-step process: First, look at the big picture (the results): How did the promoted product or service fare overall? Was it a success? How much volume was generated? How many new accounts were opened? Once the overall results have been evaluated, look at the results from marketing channels that can be more accurately tracked and measured. By showing these results as a percentage of the overall results, you discover typically that these more measurable channels can directly account for 20 to 30 percent of the results. Although this may not sound overly impressive, it starts to move you in the direction toward more accountability and credibility for the bank's marketing efforts.

The second step is to start adding details to the results that were tracked and measured. For example, show balance and profit information. Even though the more measurable marketing channels only make up approximately 30 percent of the overall results, the annualized profit that is contributed by these accounts or balances will often justify the combined marketing investment decisions.

An ROI definition

The formula for ROI that I will use for this article is "return divided by investment." This formula is shown here:

ROI = Return/Investment = Gross Margin - Marketing Investment/Marketing Investment

The higher the number produced by this formula, the more successful your marketing campaign has been in terms of dollars generated for each marketing dollar expended.

Gross margin is the financial contribution (revenue) that the company receives after a marketing investment has...