Developing Campaign Budgets: Template covering all Costs and Revenue

When developing your campaign budget you need to cover both sides of the equation – revenue and costs, to determine your overall Cost of Sale and Profitability.

I usually develop a roll out budget based on the estimated response % over a 12 month period. Of course constructing a budget over 12 months assumes that you have a large enough target market or ‘universe’ to work with. Naturally, if you have a smaller universe then your time frame will be dependent on the size of your universe and the frequency of deployments you’ll utilise to engage with your target market.

Before we go any further…

I can’t stress strongly enough that you should develop your campaign budget with the ‘bean counters’ in your Finance Department or your Business Analyst.

If you’re a SME, use your accountant, that’s what their there for! All too often marketers focus on the revenue side and neglect to include all the costs associated with campaigns. Make sure you have included all the costs and represent these costs accurately within your company’s usual accounting method.

To those CFOs and accountants reading this – you’re welcome!

The sample campaign budget outlined below is based on a direct mail campaign; however the principles involved here are the same for any direct response medium you might care to use.

Obviously, with different mediums, you’ll have some different metrics to consider and include in your budget, particularly in the response side of the equation. However, some metrics like deployment amount, sales conversion and average sales price would remain constant in any campaign budget.

Direct Mail (Campaign DM0001)

Inputs Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec TOTAL
Mail Quantity 20,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 20,000 440,000
Response Rate 0.8% 1.0% 1.0% 1.0% 1.0% 1.1% 1.1% 1.0% 1.0% 1.0% 1.0% 0.8% 1.0%
Responders 160 400 400 400 400 440 440 400 400 400 400 160 4,400
Net Closing % 55.0% 60.0% 60.0% 60.0% 60.0% 60.9% 60.9% 61.0% 61.0% 60.0% 60.0% 55.0% 60.0%
Net Sales 88 240 240 240 240 268 268 244 244 240 240 88 2,640
Gross Average Sale Price 800 800 800 800 800 800 800 800 800 800 800 800 800
Sales Incentives 50 50 50 50 50 50 50 50 50 50 50 50 50
Net Average Sales Price 750 750 750 750 750 750 750 750 750 750 750 750 750
Net Sales Revenue 66,000 180,000 180,000 180,000 180,000 201,000 201,000 183,000 183,000 180,000 180,000 66,000 1,980,000
Expenses
Personnel Costs:
Telemarketer – Fixed Compensation (3 reps) $34,500 pa 8,625 8,625 8,625 8,625 8,625 8,625 8,625 8,625 8,625 8,625 8,625 8,625 103,500
Marketing Management $40,000 pa 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 3,333 40,000
On Costs (Payroll Taxes and Benefits) 17% 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 24,395
Subtotal 13,991 13,991 13,991 13,991 13,991 13,991 13,991 13,991 13,991 13,991 13,991 13,991 167,895
Other Program Costs:
Product Costs $150 / Sale 13,200 36,000 36,000 36,000 36,000 40,200 40,200 36,600 36,600 36,000 36,000 13,200 396,000
Direct Mail Costs (Letter shop, Postage) $1/ piece 20,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 20,000 440,000
Telephone Expense 200 200 200 200 200 200 200 200 200 200 200 200 2,400
Operating Expenses and Supplies 100 100 100 100 100 100 100 100 100 100 100 100 1,200
Corporate Overheads (campaign portion) 880 2,400 2,400 2,400 2,400 2,680 2,680 2,440 2,440 2,400 2,400 880 26,400
Subtotal 34,380 78,700 78,700 78,700 78,700 83,180 83,180 79,340 79,340 78,700 78,700 34,380 866,000
Total Expenses 48,371 92,691 92,691 92,691 92,691 97,171 97,171 93,331 93,331 92,691 92,691 48,371 1,033,895
Cost per Sale 549.67 386.21 386.21 386.21 386.21 362.58 362.58 382.51 382.51 386.21 386.21 549.67 391.63
Cost Per Sale % 73.3% 51.5% 51.5% 51.5% 51.5% 48.3% 48.3% 51.0% 51.0% 51.5% 51.5% 73.3% 52.22%

Revenue

When we look at the Revenue side there are a number of things to consider when putting these numbers together:

Mail Amount

This would be the number of mailings (or other types of deployments depending on the media used). When you plug in the amount of deployments remember to consider any seasonal factors that might come into play – things like, statutory or other public holidays like the Easter and Christmas periods or school holidays, for instance. During these times of the year you might not want to deploy as much as other times of the year.

Response Rates

If you have some history to work with you’ll probably be aware that your response rates are not likely to be static throughout the year. As we’ve discussed, especially around the Christmas period through the middle of January response rates can be lower than other times of the year. You’ll see that I’ve dropped the number of mail deployed, as well as, the response rate in the example below in January and December, just for this reason.

You may also have some history to suggest that during different times of the year your response rates can be marginally higher than the rest of the year. To illustrate this, you’ll see that I’ve increased the response rates in June and July to 1.1%.

Responders

Responders are simply the anticipated number of people that will call you based on the response rate coupled with the number of deployments you sent out each month. These aren’t the buyers, they are just those potential customers that have called – hopefully, they will turn into buyers, but not everyone who calls you will buy. Many of the non buyers will turn into non qualified prospects or they’ll find that the offer you made wasn’t exactly what they had thought it was, so they’ll become Not Interested.

Net Closing %

This is the percentage of those responders who actually purchased your product or service and the sale stuck. If your particular situation requires that you provide a ‘cooling off’ period or you usually experience ‘returns’; you should also include a Gross Close % (all sales as a percentage of responders) as well as, a Cancellation # and Cancellation % in your budget to reach the Net Sales %. If you need to include these metrics, be sure to also include any associated costs in the Cost side of the budget.

Gross Sales Price

This price is the total price that a customer would pay for the product or service you’re selling. This would include the cost of any sales incentives you’ve added to the purchase price, and also any sales tax that you might have to collect as well. If you do have to collect any tax in your purchase price then you’ll also have to represent that as line item in the Expenses side of the budget.

Net Average Sales Price

This is pretty simple – it’s the net sales price after all sales incentives and/or tax has been stripped away.

Net Sales Revenue

This is the total net sales revenue generated.

Expenses

On the Expenses side of the campaign budget there are basically two areas to consider – staffing costs and other program costs. This area is usually where you’ll likely need the bean counters to help. They know what costs need to be accounted for and which line item they need to be accounted in. You’ll especially need their help in covering Personnel costs, Overhead allocation and Product costs.

Personnel Costs

In this area you need to have a line item for staff functions involved in generating the sales and fulfilment of the order. I’ve kept it simple on the sample with a line item each for Telemarketers and Marketing Management, but if your administration staff will be involved in the sales or fulfilment process, they need to be accounted for as well.

It may be that not every staff’s time devoted to only one particular campaign, and if this is the case, then you need to work out what is a fair and reasonable estimate of the costs associated with their involvement.

On Costs

On Costs are related to costs associated with Payroll Tax and staff benefits. This is one area that marketers usually forget to factor into the cost side of the equation. I guess many simply don’t have costs like this on their radar screen. However, it is definitely a cost and has to be paid and accounted somewhere.

Product Costs

The Product Cost includes all the costs associated with producing your product (or service). Unless your product or service is easily to determine; for instance, you buy it in and on sell it; you should discuss and agree on the product cost you should use in your budget with your Finance Department. There could be things that you might not have considered that impacts the product cost, so best to have a clear understanding and agreement early on.

Direct Mail Costs

For simplicity sake for this budget, I’ve bundled all associated costs related to List Purchase, Offset Printing (stationary and/or envelopes etc.), Letter Shop (laser printing, folding and insertion, postage lodgement and preparation etc.) and Postage into one price per unit. You should always have a separate spreadsheet to support the bundling of these costs into a unit cost; just to be sure you’ve covered everything.

Many Mail Houses will base their costs the number of units that they’ll run at any one time, so if your quantities are different month to month, their costs may change and you’ll need to reflect these different costs in any particular month this occurs.

Telephone Expenses

This cost can be a little tricky to figure out, particularly if you’re running a number of campaigns using the same Toll Free phone number as part of the call to action. You should probably work with your Finance Department to figure out a cost per call. A simple way to do this would be to estimate the average time (minutes) your staff will be on a sales call and then multiple that by the phone plan cost per minute. Once you’ve figured that out, multiple it again by 1.5 just to be on the safe side.

Operating Expenses and Supplies

This line item identifies any particular costs associated with expenses or supplies you need to make the sale happen. This could be where you include all your fulfilment costs to get the product or service to the customer.

Corporate Overheads (campaign portion)

Yep, this should be captured too. Having said this though, your company may capture these costs in your overall Marketing Budget, if that’s so, you don’t necessarily need to include these costs in your campaign budget. If you do, then you’ll need to figure out what proportion of the overall overheads should be assigned to each campaign.

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