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.
Like this article? Share it with your friends
 |
Related Articles |
|
Slash Your Marketing Budget
|
| |
As CMO at Deloitte and then Starwood, I hated it when other marketers measured themselves by the size of their budgets.
|
It’s The Economy Stupid!...Again.
|
| |
Marketing campaigns are about one thing…creating a campaign that generates a direct response that you can test the result of and that, when tested, shows that you made money. When you have that type of marketing cam...
|
Geek Marketing 101
|
| |
I found a great blog entry that explains technology marketing. Here are the first three elements of this top-ten list:
|
Book Review: Web Marketing For Dummies
|
| |
Web Marketing is more than just having a website - it’s the strategy of using a website in conjunction with e-mail, e-commerce, chat rooms, blogs, etc. to attract customers. If you are just starting out marketing on...
|
Are you a Guerrilla
|
| |
On numerous occasions I've heard clients describe their marketing by saying, "I do guerrilla marketing". What they often mean is - I'm not big so I don't need to plan, I'll just think of things as I need to.
...
|
|
|
Michael Fleischner's
Complete
List Of
SEO
Articles
|
|
|
If you enjoyed this article, get Michael Fleischner's Complete List of SEO Articles For FREE!
|
| |
|
|
|