Marketing Return on Investment Calculations

Marketing return on InvestmentWhen you pay for any sort of marketing you need to track the return of your investment. Spending money on marketing without any way to track the costings and profit from such an endeavour is a fools errand.

The question arises as to the best way to measure this return, is it with sales or enquiries or is there another way you measure success with a marketing campaign. Marketing by definition is there to make money not loose it, so many company’s chuck money at advertising and marketing with the only measure being a rough idea that they are making a profit (sometimes)

What are the benefits of monitoring your return of investment

The benefits are many, the main one being that you can work out what’s making you money and what’s loosing you money and adjust your approach accordingly. If marketing method one cost you £500 and you make ten sales as a direct result of that particular marketing spend. Each sale is worth £100 you would make a profit of £500. If all things remain constant it would be fair to say that if you then went on and invested £1000 you should make twenty sales with the profit to match.

If you do not measure your marketing return you could end up in the following situation. Your company spend on marketing is £25,000 per year. This covers several marketing methods including newspaper radio and internet you only know that your turnover is 175k a year.

If you had been monitoring closely you would know that the newspaper and radio advertising is costing you 75% of your marketing budget but only contributing to 30% of your turnover. The other 70% is coming from the internet. So £17,500 spent on radio and newspaper advertising is accounting for £52500 in turnover where as £7500 spent on the internet is accounting for £122500 in turnover.

This is a very simplistic example but the moral of the example is you need to know where your income is coming from and how much it is costing you

Return on Investment Calculation

to calculate the return on investment we are going to use a few simple algebra equations

Number of sales = N
Profit From Sale = S
Total Profit form sales = P
Advertising spend = A
Profit Ratio = R (anything below one means a loss ie)
Cost Per Sale = C
Profit/Loss Per Sale =X

A/(N x S) = R
A/N =C
C-S = X

Advertising Spend / (number of sales x Profit from sale) = Profit Ratio

It Sounds a little complicated but when you break it down calculating your marketing return on investment is not that complicated.

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