Marketing ROI: Make Sure Your Marketing is Making Money
Marketing ROI: Make Sure Your Marketing is Making Money
Upon first blush, this looks rather simple. Just take the total cost of your campaign, track it through to conversion and determine that the revenue generated is greater than the expense. However, most people make the mistake of assuming that calculating ROI is only involves direct expenses and revenue. There are other factors to consider when determining your return on investment.
In a moment, I’ll show you a quick formula to help calculate ROI, but before I do, let me explain the types of expenses you need to consider:
Direct Expenses. Any cash outlay you have to develop, create, and distribute your marketing campaign is considered a direct expense. For example, if you’re doing a direct marketing campaign, you’ll have to print your mailer, pay for postage, and offer an incentive. All of these factors are direct expenses because they cost you money.
If you’re marketing online with Google Adwords or a similar type of service, you’re paying for each and every click – this is considered a direct expense.
Indirect Expenses. An indirect expense is something you spend to in conjunction with your marketing efforts but doesn’t necessarily involve a cash outlay. For example, if you pay a copywriter or designer to help with your creative, their time and expense must be considered. Other indirect expenses might include your overhead such as rent, electric, phone, insurance, etc.
Now that we’ve identified some of your expenses associated with an ROI calculation, lets look at a specific campaign example and how we can determine our return on investment in a simple manner.
Example1: MarketingScoop, LLC decides to send a post card mailing to a list of small businesses promoting their directory service listing. Here is a list of expenses associated with the mailing:
Direct Expenses
Post card design $100
1,000 post cards $200
Postage $500
Total $800
Indirect Expenses
Indirect Expenses X .25* $200
A rule of thumb you can use to calculate your indirect expenses is to multiply your direct expenses by 25%. If you want a more exact determinant of indirect expense, you will have to record the amount of time attributed to this particular marketing project as a percentage of your annual ‘available working hours’. Then, multiply this percentage against your total business expense.
Based on our calculation above, total campaign cost equals $1,000. For this example, let’s assume that the campaign brings in $2,500 in revenue. Simply divide revenue by expense ($2,500/$1,000) to determine ROI. In this example, our ROI was 2.5.
Note: This is a Gross calculation which means that we have not subtracted any product related expenses. This gets into Net Income, EBITDA, and other stuff for the accounting team to figure out.
The key is to use this information as a benchmark for future campaigns. Instead of assuming that a marketing campaign is productive, you now have a basic measurement to evaluate it and compare future campaigns.
About the Author:
Michael Fleischner is an Internet marketing expert with more than 12 years of Internet marketing experience. Visit the Marketing Blog to learn more.
Marketing ROI Make Sure Your Marketing is Making Money - To learn more about this author, visit Michael Fleischner's Website.
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Today, if you ask any marketer what his biggest challenges are you will no doubt here Return on Investment (ROI) at the top of their list. With competitive pressures, businesses more focused on profitable growth, and an increased need to do more with less, marketing professionals need to generate favorable returns on most – if not all of their marketing campaigns.
Upon first blush, this looks rather simple. Just take the total cost of your campaign, track it through to conversion and determine that the revenue generated is greater than the expense. However, most people make the mistake of assuming that calculating ROI is only involves direct expenses and revenue. There are other factors to consider when determining your return on investment.
In a moment, I’ll show you a quick formula to help calculate ROI, but before I do, let me explain the types of expenses you need to consider:
Direct Expenses. Any cash outlay you have to develop, create, and distribute your marketing campaign is considered a direct expense. For example, if you’re doing a direct marketing campaign, you’ll have to print your mailer, pay for postage, and offer an incentive. All of these factors are direct expenses because they cost you money.
If you’re marketing online with Google Adwords or a similar type of service, you’re paying for each and every click – this is considered a direct expense.
Indirect Expenses. An indirect expense is something you spend to in conjunction with your marketing efforts but doesn’t necessarily involve a cash outlay. For example, if you pay a copywriter or designer to help with your creative, their time and expense must be considered. Other indirect expenses might include your overhead such as rent, electric, phone, insurance, etc.
Now that we’ve identified some of your expenses associated with an ROI calculation, lets look at a specific campaign example and how we can determine our return on investment in a simple manner.
Example1: MarketingScoop, LLC decides to send a post card mailing to a list of small businesses promoting their directory service listing. Here is a list of expenses associated with the mailing:
Direct Expenses
Post card design $100
1,000 post cards $200
Postage $500
Total $800
Indirect Expenses
Indirect Expenses X .25* $200
A rule of thumb you can use to calculate your indirect expenses is to multiply your direct expenses by 25%. If you want a more exact determinant of indirect expense, you will have to record the amount of time attributed to this particular marketing project as a percentage of your annual ‘available working hours’. Then, multiply this percentage against your total business expense.
Based on our calculation above, total campaign cost equals $1,000. For this example, let’s assume that the campaign brings in $2,500 in revenue. Simply divide revenue by expense ($2,500/$1,000) to determine ROI. In this example, our ROI was 2.5.
Note: This is a Gross calculation which means that we have not subtracted any product related expenses. This gets into Net Income, EBITDA, and other stuff for the accounting team to figure out.
The key is to use this information as a benchmark for future campaigns. Instead of assuming that a marketing campaign is productive, you now have a basic measurement to evaluate it and compare future campaigns.
About the Author:
Michael Fleischner is an Internet marketing expert with more than 12 years of Internet marketing experience. Visit the Marketing Blog to learn more.
Marketing ROI Make Sure Your Marketing is Making Money - To learn more about this author, visit Michael Fleischner's Website.
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David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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Jeff FosterWebBizIdeas.com is a Minneapolis website design company founded to help people start an internet business by providing them with website, business, and internet resources that help foster the growth of successful online businesses and develop innovative Internet business ideas. We specialize in internet consulting & internet marketing. - Visit Jeff Foster's Website |
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Stephanie RobeyStephanie Robey is President and CoFounder of Pivot Positive, LLC - an Internet marketing business focused on helping people start work at home ventures. Previously, she was employed at The Search Agency with over 20 years experience in graphic design and 10 years experience in online marketing. She was responsible for launching the Conversion Path Optimization (CPO) unit where she and her team have conducted hundreds of optimization tests for online companies across multiple verticals. She is a successful entrepreneur having started and sold 2 companies and remains on the board of directors of the third, PhotoSpin.com Stephanie began her career in the direct marketing realm creating and producing direct mail for many of the major cable television companies and directly attributes her understanding of Internet marketing to those early offline experiences. Stephanie is a graduate of San Diego State University with a BFA in Graphic Arts and also holds an Executive MBA from the Graziadio School of Business and Management at Pepperdine University. Read Steph's Blog Meet Steph and Dave Sign up for our Free 7-Day BootCamp: Self Employed & Rich - Visit Stephanie Robey's Website |
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Joe DagerJoe Dager is President of Business901, a progressive coaching company providing no-nonsense direction in areas such as Lean Six Sigma Marketing and organized referral marketing. What others say: In the past 20 years, Joe and I have collaborated on many difficult issues. Joe’s ability to combine his expertise with “out of the box” thinking is unsurpassed. He has always delivered quickly, cost effectively and with ingenuity. A brilliant mind that is always a pleasure to work with.” - James R. If you want to learn more about Business901, start a conversation with us. We can be found @ Web/Blog: Business901.com Web/Blog: FundingYourNonprofit.com LinkedIn Profile Follow me on Twitter - Visit Joe Dager's Website |
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Leanne Hoagland-SmithAre your sales where you want them to be? Will you be one of the few who achieves sales or business success or one of the many who have failed to change? Are you tired of being told you are like everyone else? Then you may find my first book on sales of interest. Be the Red Jacket in the Sea of Gray Suits, The Keys to Unlocking Sales available at Amazon or at http://www.processspecialist.com/red-jacket.htm. This book is a reflection of my no-nonsense approach to improving sales to overall business results. If you are truly committed to making sustainable changes, then I can help you secure a positive return on your investment because I focus on executable solutions not telling you the problems you already know you have. From training to corporate (group) coaching to executive one on one coaching, my approach is to assess, create awareness, build a goal driven action plan and then execute. The bottom line question is "Not do you or your employees know it, but do you or they want to do it?" Please call for a free strategy session at 219.759.5601. - Visit Leanne Hoagland-Smith's Website |
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Cheryl MatthynssensCheryl is a life skills coach, licensed Chemical Dependency Counselor and a 20 year entrepreneur. Cheryl's dedication to achieving a life of balance led to her expanding her teaching from the simple managing of life's daily challenges to adding financial well being as well. A direct marketer with DrinkACT, she is gaining ground in the online community with her concepts of making sure business owners, entreprenuers and employees have well rounded life styles. She opened up a small affiliate site - The Balance Guide- to help others find resources for mental and emotional well being. Visit Cheryl's blog to see more of the diversity beyond business she has began offering online at www.thebalanceguide.blogspot.com - Visit Cheryl Matthynssens's Website |
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