Clicking into Mumbrella, I read the headline: “Mark Lollback’s big regret as McDonald’s CMO: Flushing ‘$3m down the toilet’ on Salesforce.”
He was speaking as part of a session moderated by Mi3’s Paul McIntyre, at The Future of TV Advertising conference held recently in Sydney.
Now I’m not one to rip into Customer Relationship Management (CRM) technology for the sake of bashing it.
I love direct to consumer marketing, or CRM, when it’s done well.
And by well, I mean when it has been strategically identified as to its role in helping a client improve its marketing.
For McDonald’s Australia, or any client for that matter, an ROI business case (aongst other assessments) should have been done, to show how the new CRM program could deliver incremental profit over a period of time with specific segments of consumers. Ideally breaking even within 3 years, and then ROI positive thereafter.
The key word in all of this is “incremental”. So by doing something extra – and in Maccas case spending $3M – how many extra burgers, fries, and other products would they need to sell in order to become ROI positive?
Breaking even in 34 years!
If you’ve never done a ROI calculation for a CRM program, then here’s what you do.
You take all the products on the menu and identify the marginal contribution (MC) amount (profit) for each product.
For example, here are some retail prices for McDonald’s products as of March 2020.
- Big Mac Meal, $10.30
- McFeast burger only, $6.95
- Crispy Chicken Caser McWrap, $7.80
- cheesy toasty, $4
- Bacon and Egg McMuffin, $4.45
- Frozen Coke, $1
- small flat white, $3
But you’d need to calculate the MC for each product.
Salesforce would have been privy to this information. I’ll just take a blanket guess and apply an average of 25%. Hence the MC of the products above would be:
- Big Mac Meal at $2.58
- McFeast burger only, $1.74
- Crispy Chicken Caser McWrap, $1.95
- cheesy toasty, $1
- Bacon and Egg McMuffin, $1.11
- Frozen Coke, $0.25
- small flat white, $0.75
You can then identify the segment of customers on the database that you want to affect.
Let’s assume Maccas acquired 1M consumers to its database. Now of course there are acquisition costs that need to be factored into acquiring people onto the database, and then an annual churn rate would need to be factored in for each year of CRM activity.
But if we then assume out of the 1M consumers, Maccas could affect 10% of them with CRM activity. Then they could affect 100,000 consumers per year.
You’d have to identify what these 100,000 consumer’s current annual purchase value is, calculated on their total product purchases per year multiplied by the MC rates of the products purchased. And then work out a projected incremental value. Maybe projected on a 2% annual shift.
As a pure example. Let’s assume a medium to heavy level consumer purchases a Big Mac Meal every three weeks. Hence roughly 17 times a year. Therefore their total value is 17 x $2.58 = $43.86.
If we got an average 2% shift in value, then we would be generating an incremental $0.88 per year from each consumer ($43.86 x 2%).
Assuming we could impact 100,000 consumers like this then Maccas could generate, per year, an incremental 100,000 x $0.88 = $88,000. Spending $3M means you’d break even in 34 years.
Or if the objective was to get them to buy one more Big Mac meal a year, then factoring in an incremental $2.58 multiplied by 100,000 consumers, then it equates to $258,000.
Even if Maccas had 5M consumers on their database and could impact 500,000 of them like this (which is bloody hard), then they would only generate an incremental 500,000 x $0.88 = $440,000. That would mean breaking even in 7 years.
Now in the above simplified calculations, I’ve assumed that the $3M figure that Mark Lollback mentioned was a total marketing spend, but of course it’s probably only the cost for Salesforce.
As mentioned, you’d need to factor in the cost (and yearly projected database growth in the number of consumers) to acquire 5M people onto the database, the annual churn rate, and the actual cost of the CRM activity to generate the purchasing shift, to get a total spend figure (investment).
I’d hate to guess this number.
Then you could work out a relatively accurate ROI figure (ie: for every $1 spent, how much incremental return are you making).
Or as a ROI % (incremental gain minus the cost of investment, divided by the cost of investment).
For the above rough calculations, to spend $3m and make $88,000; $258,000 or $440,000, then it’s pretty sick. It would take Maccas an eon to achieve anything near to a positive ROI.
How was CRM assessed?
So, in working for TrinityP3, one of the first questions we would have asked McDonald’s when considering CRM technology installations, is how do they want to view CRM activity?
Like any marketing technology installation it needs to be assessed on many dimensions: cultural, strategic, financial, structural, capability, and process.
TrinityP3 is all about remaining independent and agnostic. We offer the industry, marketers, agencies and vendors assessment based on marketing value. Seen as driving efficiency or delivering greater effectiveness. Make sure your marketing is achieving maximum performance – contact us here
This post was originally published on Mumbrella.