In today’s super budget conscience business environment everybody’s trying to figure out how to connect with new potential customers without increasing costs. After all, any new money can only come from one place – directly out of profits, or more accurately for small business owners, directly out of their pockets. So, as a small business owner, it’s to your benefit to take a close, hard look at how you are spending money on marketing and what is the return you’re getting on that investment. Let’s look at two traditional areas where marketing investment takes place: 1. Out-bound communications ie, Advertising, PR, or Direct Response or 2. supporting direct sales via a sales force. Here are cost estimates per contact for these two different kinds of activities:

How about asking your sales people to make their own appointments?

If you support a sales force and have them make out-bound calls one key piece of information you need to calculate is what it’s actually costing you for each new client you acquire. You need to know: How many potential new customers can your sales people reach on a daily basis? Then, how many of these contacts result in a face-to-face meeting and how many meetings result in sales?

This is an easy calculation, assuming you can actually get your sales people to do the prospecting. Put in your own costs to make it more accurate for yourself.

Description	Typical Measure	Notes
Total Compensation	$12,500	To calculate the cost of your own sales people making their own appointments, simply divide their total expected compensation by the amount of time they spend prospecting (and add in the expenses below.) A decent base + commission rep is going to make about $50K, and spend 1/4 of his or her time prospecting.
Expenses	$6,000	Telephone, gasoline and the rubber chicken they serve at the Chamber luncheon come out to about $500 per month for the average sales person. Include the cost of the lists that the telemarketer would have used, and a couple of dollars for letters and golf.
Management	$5,000	Do you want to include management time? How much nagging do you have to do to get them to go out, or pick up the phone? How much does sales training cost? Pick a number.
Opportunity Cost	$50,000	This is the biggest factor, and the source of the most controversy. Many sales people will tell you that if they have to go out prospecting then they’re going to lose business at their current accounts. Sometimes they’re right, sometimes it’s an excuse not to go cold-calling. We picked an average number, assuming they’re right half the time, they have a $1M territory, and are vulnerable on 10% of their accounts. No one knows who’s right.
Gross Cost	$73,500	If you ignore opportunity cost, this number is $23.5K. You’ll see in a moment that it isn’t going to make that much of a difference. What did you get?
Description	Typical Measure	Notes
Initial Calls	250	In order to compare apples-to-apples, you can’t count these suspects as prospects until there is a second call. That’s because the first call is where the sales rep finds out if there’s a need. How many first calls do your sales people make during a week? Five would be a lot.
Appointments	100	Do your sales people turn up two good new prospects per week? Whatever they get, multiply it by 50, and enter it here.
Cost per Lead	$735 /$235	Having your sales people do their own telemarketing is good because you’ve already invested in the resource. Understand, however, that it’s still very expensive. If you ignored the opportunity cost, your cost per lead is $235 — still a lot of money.

How about hiring a telemarketing company to make the calls and set the appointments for you?

Description	Typical Measure	Notes
Cost per day for good Telemarketer	$300	Charges will vary depending on the skill level of the caller, the more complicated the task the higher the cost, the simpler the task the lower the cost.
Cost for prospect record	$50	Average of 100 records per day of calling at an estimated $.50 per qualified name
Cost per Lead	$350	The likely out come will be 1 qualified lead from 100 “phone lifts” (call made including no connections and voicemails) But you can estimate a likely 35 “meaningful conversations” or discussions with the correct person with a realistic need or ability to buy.

As you can see both these methods are very expensive even when you are putting your own people to use. If you ignore the “opportunity cost in having your own people make the prospecting calls the cost drops to about $235. So, if these costs are too high for your business what else can you look at? How about direct mail?

Direct Mail with a telemarketing follow-up

The secret to maximizing a direct mail investment is to follow it up with a phone call. It adds to the cost (in the form of your sales person’s time — plus some opportunity costs that can be ignored.) But, telemarketing does make direct mail more effective. Compare your results to the norm to calculate your cost per lead when you add the phone call.

Description	Typical Measure	Notes
Material Development	$6,000	The cost of materials includes the development, design, copy, photography, printing, letters, BRCs, inserts, the mailing list, and waste. A typical commercial mailing of 1,000 pieces will cost $6,000, but you can enter your own estimate from your own experience. Costs can vary widely ($7. per contact incl. postage)
Management	$2,500	The management cost is going to increase because you’re going to have a big fight getting your sales people to make the phone calls. Either that, or you’re going to have to take the time to hire a telemarketer. We’ll be generous with our estimate. Enter yours here.
Mailing Cost	$1,000	Fulfillment costs might be higher for a complex piece. Don’t forget postage. Enter what it costs you from the time you have your material in hand, ’til the time it’s in your prospect’s hand.
Telemarketing Costs	$6,250	Let’s assume that your sales people are going to make their own phone calls) Our average salesperson has a $50K base plus commissions. We’ll estimate making 1,000 calls which is going to take about 250 hours. We’ll ignore opportunity costs and enter the additional cost of the telephone follow-up here.
Gross Cost	$15,750	Obviously, adding a telephone follow-up to your direct mail program is going to increase the costs, probably by a lot more than this. What’s your estimate?
Description	Typical Measure	Notes
“Leads”	250	Telemarketing works, so your response rates are going to go up. Perhaps not as much as if we did it, but we certainly would concede that that will jump by a factor of ten, from 0.5% to at least 5%.
Real Leads	125	From the fifty suspects you got above, how many are real prospects? Again, 50% is a good estimate from our viewpoint. What’s yours?
Appointments	62	And how many of those will turn into appointments? We figured half. What would you say?
Cost per Lead	$254	This is starting to look better. The response was better, and it looks like the cost-per-lead went down. What’s your cost-per-lead when you add a telephone follow-up to your direct mail program?

A Shared Cost Direct Mailing

Let’s take a look at an alternative to stand-alone direct mail. Instead of incurring the costs of producing and distributing your own direct mail piece you produce a promotional advertisement that is part of a targeted mailer. You share the cost, in a non-competitive environment and follow up by calling all the same names on the list.

Description	Typical Measure	Notes
Development and placement for 1 time	$850	The cost includes the development, design, copy, printing, and the shared cost for the mailing list. A typical commercial mailing is 5,000 pieces. ($.17 per contact)
Management	$2,500	As before the management cost is going to increase because you’re going to have a big fight getting your sales people to make the phone calls. We’ll be generous with our estimate. Enter yours here.
Mailing Cost	- 0 -	It is included in the placement cost
Telemarketing Costs	$8,000	Let’s assume that you’re going to hire a telemarketer to make all 5,000 phone calls. At an average of 100 calls per day it’s going to take about 400 man-hrs. to make the calls at a cost of $20 / hr.
Gross Cost	$11,350	Obviously, adding a telephone follow-up to your direct mail program is going to increase the costs, probably by a lot more than this. What’s your estimate?
Description	Typical Measure	Notes
“Leads”	500	Telemarketing again enhances your response rates are going to go up. We will use a factor of 10% of the 5,000 pieces.
Real Leads	250	From the 500 suspects you got above, how many are real prospects? Again, 50% is a good estimate from our viewpoint. What’s yours?
Appointments	125	And how many of those will turn into appointments? We figured half. What would you say?
Cost per Lead	$91	This is starting to look better. The response was better, and  the cost-per-lead went down. What’s your cost-per-lead when you add a telephone follow-up to your direct mail program?

What happens if you don’t make the follow-up calls to the whole list only to the people who contact you directly as a result of getting the mailing?

Shared Direct Mailing with follow-up only with self-generating inquiry

Description	Typical Measure	Notes
Coupon Development and placement for 1 time	$850	The cost includes the development, design, copy, printing, and the shared cost for the mailing list. A typical commercial mailing is 5,000 pieces. ($.17 per contact)
Gross Cost	$850
“Self generated Leads”	100	A direct mail industry average for projected self generated return is .02% of the total drop
Real Leads	50	From the 100 suspects you got above, how many are real prospects? Again, 50% is a good estimate from our viewpoint
Appointments	25	And how many of those will turn into appointments? We figured half. What would you say?
Cost per Lead	$34	This is starting to look better. The response was better, and the cost-per-lead went down some more.

Communication Tactics Cost per closed lead:

• Having your sales staff making calls                         $ 735 – $235
• Hire a telemarketing firm to make calls                                $ 350
• Use direct mail with telemarketing follow-up                        $ 254
• Use shared direct mailing & phone follow-up                       $   91
• Use shared direct mailing w/ follow-up to inquiry     $   34

If your cost per customer acquisition is $34 then how much is your average first-time sale? If it’s less than $340 your costs are going to run greater than 10% of your sale. If your customers generally become regular buyers then what is their average life time spending and what is the marketing investment as a percent of the revenue generated? These are important questions for you to have answers to before you invest in any paid marketing.

As the cost for printing rises due to increased cost for inks and paper and as mailing cost increase (there is a recently proposed increase from $.44 to $.46 for first class postage) small business owners are going to have to look for new ways to lower their marketing communication costs. Using a “shared cost direct mailer” is one way to bring this cost down. There are several examples of this type of media. They tend to be targeted like the “Clipper Coupon” publications that focus of B2C Food service businesses. There are other opportunities available. Please contact us if you would like more information about these opportunities.

Our next article will take a look at how in-bound communications –Social Media Marketing is lowering the cost of customer acquisition for companies who have invested in this new form of communication.