Q: How can I justify the cost of a PR program, and how do I know what the ROI is?

A: One of guerrilla marketing guru Jay Conrad Levinson's credos is, "Don't purchase advertising unless it's part of a total program or campaign." In this case, advertising is not synonymous with marketing. In today's world, advertising is just one element of the marketing formula. In fact, there is a shift occurring away from advertising to other marketing that's less costly and more cost-effective and efficient.

This is especially true at the beginning of a company's marketing efforts or the beginning of a particular service or product campaign. One trend is toward more PR. In all your marketing efforts, your goal is to gain that top-of-mind awareness position with your prospect/customer. PR can do this. Advertising can do this once that awareness is attained. PR gets you there; advertising keeps you there.

Without that share of mind, your chance for a sale decreases. This is especially true when advertising claims are doubted or skeptical or when consumers and prospects are inundated with so much advertising that a good portion is rejected.

Knowing the return of PR truly justifies it as an integral part of the marketing arsenal. Measuring the effectiveness of a PR program is something that should begin at the same time the PR idea is originated.

Measuring PR can be vague; however, the more specific the objective, the better the measurement. Most entrepreneurs try to measure PR based on objectives that are not measurable. Here are some examples of objectives not easily measured:

  • Attain top-of-mind awareness by the end of the year for your brand.
  • Introduce your new service with a "bang."
  • Make your company more visible.
  • Increase word-of-mouth referrals.

These are good objectives, but how will you know when you attain them? That is one of the objectives of good measurement. Here are some examples of better objectives to improve the measurement:

  • Get three mentions in business magazines.
  • Mail your book to 35 book reviewers and get three favorable reviews published in their publications.
  • Ask all new customers how they heard about you, and get 40 of these as a result of published articles or announcements in trade publications.

As you can see, one is much more specific than the other, and therefore much more measurable. The key is to get specific in your planning and execution. The result is specific criteria on which to measure the PR effort. Once this is done, it's easy to evaluate where to spend budget dollars. It's very similar to evaluating the overall marketing plan: List all the weapons used; evaluate their effectiveness by A, B or C, with A being superior and C being poor; throw out the C weapons in the next planning year and repeat the A and B weapons in order of effectiveness. The key is making sure each goal is, in fact, attainable. In other words, you probably won't set the goal of making repeat appearances on Oprah.

How to Calculate Your ROI
To calculate the ROI on your publicity program, you'll need to make certain assumptions. Here are some examples and the ensuing ROI calculations. Remember the specific goals.

1. There is a group of potential customers that, given the right motivation, will be attracted to contact your company in some way.
2. Every 10 inquiries received results in two new customers (a 20 percent close rate).
3. The average customer order is $2,000 (order $).
4. The average customer orders four times per year (# orders/year).
5. The average gross profit (GP) on an order is 30 percent.
6. The cost of a professionally implemented publicity program is $24,000.

How many inquiries do I need to generate to break even (ROI = 0%) based on the above assumptions?
No. of inquiries to break even = program cost/(close rate) x (order $) x (# orders/year) x (GP)
No. of inquiries = $24,000/(.20) x ($2,000) x (4) x (.30) = 50

How many inquiries would it take to achieve an ROI of 50 percent?
No. of inquiries for 50 percent ROI is 75. (Because it took 50 inquiries to generate the $25,000 to break even, another 25 inquiries would generate an additional $12,500 in profits for an ROI of 50 percent.)

What is the lifetime value of a new customer? Of an inquiry?
Assuming the customer will be with you for two years:
Lifetime value of customer: (order$) x (# orders/year) x (GP) x (2 years) = ($2,000) x (4) x (.30) x (2) = $4,800
Lifetime value of inquiry: (lifetime value of customer)(close rate) = ($4,800) x (.20) = $960

Is it possible to generate 50 to 75 inquiries per year with an effective publicity program, to generate the numbers above? History has proved that the ability of publicity to draw inquiries has a high degree of probability compared to other methods of advertising and promotion.

Keep in mind the above assumptions are only examples. Plug in your own numbers and see what might be possible for your business.

Alfred J. Lautenslager is an award-winning marketing and PR consultant, direct-mail promotion specialist, principle of marketing consulting firm Marketing Now, and president and owner of The Ink Well, a commercial printing and mailing company in Wheaton, Illinois. Visit his Web sites at http://www.market-for-profits.comand http://www.1-800-inkwell.com, or e-mail him at al@market-for-profits.com.


The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.