Thursday, April 23

How to Build a Marketing Incentive Proposal

Funny thing happened to me on the way to finding a twitter guru, athe last three emails from the people handing in their proposals all asked "how do I create an marketing proposal with an incentive in it?". Everyone has ideas for giveaways, for getting the readers interested in the content, but the question is on the concept of pricing - as in how should they draft a pricing model.

Well, I always start off with the value of the action (e.g. PR, SEM, SEO, social media, etc) in terms of value to the company - and usually in a fungable manner - which usually corresponds to how much money do visitors bring to the site.

For marketeers, the minute you talk about money - or the expectation of money due to their actions - the following comment shows up:
"We don't promise traffic or revenue - we only promise mentions or hits. And we can not prophesize how many visitors will come or how many visitors will buy."
And - that's fine. But, the idea of the web and the incredible power of IT is that we can discover trends in performance and see what could be performance.

An Example
Let's start off with an blog outreach marketing example: lets have a website - call it which generates 1000 visitors a day to the site. 70% of the traffic is organic, 20% comes from search and 10% comes from referrals (from a link from another site).

Overall, the site converts visitors to sales at a 2% conversion rate (for every 100 visitors, 2 make a purchase) and the average ticket size of a purchase is $50.

This information should give you a starting point - and you would have to understand the concept of the funnel - finding a percentage of the people who are doing one action that will do the next action.

The funnel here will be:
  1. From the blog site / blog post to a landing page
  2. From the landing page to the Checkout Page
  3. From the Checkout Page to the Thank You Page (they completed the sale)
So - Steps 2 and 3 are addressed by the conversion rate described earlier (2%) which means we have to guestimate on Step 1.

Making a Guess
From most sites - we can make an estimate of a 1% transaction performance - for every 100 visitors, 1 person clicks through to the link asked to be clicked through. So, if we know a site generates 40K viewers a day, we can make an estimate on post performance (how many viewers it gets). Again, we have to make a model on the post performance based on the length of time the post is at the top of the page of the blog.

NOTE: we are not talking about views, but viewers.

For instance, if the blog posts more than one post a day, there is a declining performance of viewers on the post. So, think along the line of 4 hours at the top, 4 hours second, 4 hour third and so on. Then weight the hits on the article along a declining scale (top gets 100%, second gets 80%, third gets 20% and others almost nothing). Thus, if the site gets 40K viewers a day, then one could caluclate a post gets the following number of viewers: (1/6) * 40K + (1/6) * 40K * (0.8) + (1/6) * 40K * (.2) = 16K viewers.

That means that if a post gets on one of these blogs, then 1% of the 16K viewers or 160 viewers will go to the link posted on the blog.

If you figure out how many blogs you would b targeting, how many viewers are at them, how frequenctly a post will occur - you can get an estimate of the viewers that will become visitors at the target site.

Then, once the estimated number of posts and viewers are calculated, you can calculate the revenue that is possible from the earlier metrics.

So how much do I make?!?
And now comes the challenge - how do you figure out how much to charge the client?

Well, there are norms out there in terms of other work effort - which include 15% sales commissions for a sales lead, 30% margins for marketing costs for products, and so on - you have to fugure out what is your target metric of revenue as well.

In addition, consider the point-of-view of the client - they are looking for a return on their investment on you - and specifically, how you will generate the sales they need to succeed. They are not interested in overspending in the long run, but they are often able to understand there is some front-loading on the beginning, and the return comes in the later weeks.

But social media and PR is a difficult effort - since it is not like programming where the work is at the beginning, and the performance improvements are found after the site is launched (as you save operations costs, or gain on improved conversion and revenue). It is about continuing to build relationships and to provide content for them that will help their needs - for their viewership.

At this point, an Excel Sheet comes in handy - to show what the expenditures are, and the revenue the company will make as the program is executed. Now, you have the map the revenue generated to the money spent and balance the two.

"Umm, Sanford - this is confusing!"
I know - I understand the challenge - and wish there were an easier way of forecasting. But - the nice aspect of this is that the client can go over your numbers with you - and help you improve the model.

I will try to refine this post with your comments.

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