Question

ROI Problem-Michael Forte, founder and CEO of Northeastern Dental (ND) has created a chain of dental offices in South Florida that serve small communities outside of the main cities. The firm was launched three year ago and makes profit by providing dental services. However, they are not thinking about expanding into Orthodontics. The company finds itself at a fork in the road where it must ratchet up sales to continue its ambitious goals or cut costs to insure survival. Recently the firm opened four new offices as a part of its own-brand expansion plans. The company budgeted a substantial amount to promote the new offices and its Dentists. The investments were made before the recent economic downturn and are now getting a close review. The CEO is particularly focused on the firm's expenditure in the direct marketing category. You have a Direct Marketing firm that specializes in the medical and dental area. Since data on its target market show a propensity for searching for dentist via the internet and its website produces a steady stream of appointments the CEO is skeptical of continued investments in direct marketing. You have to demonstrate what would be the Return On Investment (ROI) data on direct marketing promotions. Following please find the data available for calculation: Annual Profits: $103,000; Annual Profits attributed to Direct Mail Campaign: $30,000; Annual Profits attributed to Web Site: $45,000; Annual Direct Mail Investment: $5,150 (this would be what they pay for your services); Monthly costs for operating and maintain website: $755. Answer the following question to demonstrate an understanding of Return On Investment (ROI) and how it applies to the sale you are trying to make: What would be your recommendation? searching for dentist via the internet and its website produces a steady stream of appointments- the CEO is skeptical of continued investments in direct marketing. You have to demonstrate what would be the Return On Investment (ROI) data on direct marketing promotions. Following please find the data available for calculation: Annual Profits: $103,000; Annual Profits attributed to Direct Mail Campaign: $30,000; Annual Profits attributed to Web Site: $45,000; Annual Direct Mail Investment: $5,150 (this would be what they pay for your services); Monthly costs for operating and maintain website: $755. Answer the following question to demonstrate an understanding of Return On Investment (ROI) and how it applies to the sale you are trying to make: What would be your recommendation? b.Stops using the Website as it has a bad ROI. d. Quadruple the investment on Direct Marketing to guarantee a significant increase in profits with the 4 new locations. a. There is no difference in the ROI, so keep everything to maintain the profits. c. Consider increasing the investment on Direct Marketing to gain more profits.

Answer 1

Answer:

Correct answer is:

c. Consider increasing the investment on Direct Marketing to gain more profits.

Explanation:

ROI on direct mail campaign = (30000 - 5150) / 5150 = 482.5%

Although website produces steady stream of appointments, since they are going for 4 new locations it will be prudent to increase investment in direct marketing since it has very high ROI and may result in significant increase in profit in view of new locations.

Best recommendation would be to consider increasing the investment on Direct Marketing to gain more profits.

Option c is correct.

Option a and b are incorrect since website has a very high ROI, higher than direct mail campaign. Website ROI is ((45000 - 755) / 755 =) 5860%

Option d may not be a good recommendation. In view of new locations it is difficult to guarantee significant increase in profit by recommending to quadruple investment in direct marketing.