You won some new customers for your double glazing business. But did that glossy 12 page leaflet offering free installation really make financial sense? Your Return on Investment (or more specifically, your Return on Marketing Investment) will show you how much extra profit you made for every pound you spent.
Knowing your ROI will guide you to make better decisions before and after you spend money on marketing - which should make your business case even more compelling. And thankfully, nowadays it can be pretty easy to work out.
What do I need to know?
To measure the success (or potential success) of your campaign, you need two key bits of information:
How much you spent (your Investment)
Hired a graphic designer? Spent many a late night sweating over the details? Your Investment should include things like design, printing and postage costs. It’s also easy to forget that your time doesn’t come free. So try to include any extra staff costs, even if it takes a little while to work out.
How much extra profit you made (your Gain)
Your profit is how much you sold (your revenue) minus whatever you paid for your goods or services (your costs). Be sure to include any discounts or special offers in your costs. And remember that we’re looking for extra profit. So if you normally make £1,000 when your campaign’s running and you make £1,500 instead, your Gain is £500.
Now you have your Investment and your Gain, you can quickly work out your Return on Investment (ROI).
Note: Don’t worry if you can’t relate all sales and costs to a campaign - ROI is not an exact science so do as many as you can without getting too bogged down. Think of your ROI more in general terms than raw numbers.
How did I do?
A positive ROI score means that you made extra profit during the campaign. A negative ROI means that you lost money during the campaign.
For example, Jim runs an independent coffee shop. He decides to run a direct mail campaign offering a free cake when customers buy a coffee during April. His ROI is 1.0 which means that for every £1 he spent, he gained an extra £1 of profit that he wouldn’t normally have earned. Not bad!
“Half the money I spend on advertising is wasted; the trouble is I don't know which half.”
John Wanamaker, 1838 - 1922
A little planning goes a long way
Although ROI is normally measured after a campaign, plugging in some estimates before running a campaign can help you make better decisions (and potentially stop you from making bad ones).
Being able to accurately track your investment is critical. So try to build in a way to do this. For example, make customers bring a leaflet in store, visit a specific web address, enter a code online or quote something over the phone. This will help you better understand if your revenue is coming from your business as usual, or if it’s from your campaign.
One more thing
Don’t just rinse and repeat
Your campaign had decent returns. But what if you had sent the mailer to a larger group, changed the offer from free delivery to 20% off, or even just gone with that other headline you were considering? Getting into the habit of testing ideas side-by-side can help make your ideas go further. What works now might not work tomorrow, so using testing can reinforce your successful ideas or help shape new ones.