ROI on print advertising
How to get 130% ROI on your advertising
Someone recently asked me to send them advertising pricing so they could calculate “ROI”.
This made me shudder because I have a huge internal struggle with return on investment relating to advertising. On one hand I believe that marketing is not an investment but a necessary expense for the simple reason that without it you are not visible on your consumers’ collective radar. It should therefore appear on your business plan and continue ad infinitum. On the other I understand that businesses do not have bottomless pockets when it comes to marketing budgets and will therefore want to see a return against the outlay they make.
So at what point are you able to start calculating the ROI? I don’t think you can start until there are a few basics in place i.e. that you have:
- set a marketing plan (Back to School – the 3 R’s)
- made your marketing consumer-centric (It’s not you, it’s me)
- worked out what you are looking to get out of your advertising (Getting more customers: what’s your real goal?)
- systems in place monitoring your response rate (How to tell if your advertising campaign is working)
At this point you can get to work on the numbers. For the mathematically challenged (and that includes me) you’ll be pleased to know you don’t need to hire a McKinsey PhD statistician for this part. In fact you don’t need to open up your spreadsheet package. All you need to do is look at the revenue to cost ratio i.e. incremental revenue gained by a marketing campaign divided by the cost of the campaign*.
Here’s an example. Let’s pretend you own a restaurant and splash out £40 to run a Facebook advert that targets 200 of your loyalty programme members with the offer of an exclusive “midnight feast” cooked by Chef Yada Yada.
5% of the recipients of the advert climb over themselves to book a table and overall eat and drink a total of £700.
In this scenario the revenue to cost ratio works out at 18x.
Is this a good result?
The general rule of thumb for most businesses is that 5x is a decent return, and 10x is a home run. So YAY! 18x is knockout.
Translating that into figures; if you spent an additional £200 for food and £40 for the advert then a mark-up of £460 deserves 5 stars on the door for something other than food hygiene.
By now you will be giddy with excitement about the ROI from this small outlay, so chances are you’re prepared to continue with more of the same. Holding onto your hollyhocks a-la Derek Daly style you decide to make it a regular offer and by investing just a smidge over £1000 over the next 12 months you have the potential to see an increase in your restaurant’s annual revenue by nearly £12,000.
Obviously you don’t need to be a restaurant owner to understand the revenue to cost ratio. Once you’ve worked it out you can apply it to most businesses*, and then decide whether you should advertise in a magazine (always of course, but if you don’t believe me keep reading!), or pay for a text message campaign, or run a daily deal via email marketing. You can estimate revenue to cost ratio up front, or you can try a campaign once and see if it passes your ROI hurdle.
So can you get your ROI to hit 130%? Well, a study published earlier this year showed magazine advertising can achieve this staggeringly high level. For those of you who like to read such geeky stuff then you’ll find the detail here.
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