When you have or think about having a business, the first thing we think about is to announce it so that people realize that we exist and can come and visit us, but there are few businesses that take this process with the necessary objectivity. Like any investment, marketing is not just about letting go of money and expecting to do well, we have to really analyze what the return on investment is, that means, how many times we are earning in sales of what we spend on advertising. Sadly there are few or almost no providers of advertising and marketing options that tell you this, most try to sell you with the largest number they have, they tell you that many people will see you, or that many people see your advertising, or that is something that many people use but they do not tell you in the end how many of them are going to buy you and if you do not know how to measure your strategies you may fall with these numbers and in the end you do not know if it was a good investment or not.
The first thing you need to know to measure your marketing strategy are the steps followed by a person who does not know us until he becomes our client, this is called Sales Funnel or many call it a Marketing Funnel.
It is for this reason that I mentioned that marketing or advertising salespeople always tell you the biggest number, «How many views does your advertising medium or marketing strategy have?» They promise you certain visits or certain impacts, but you have to understand that this is only the first part of a funnel, but this time we will not get into this much, let’s see what is necessary to measure the effectiveness of our investment.
What is the ROI (Return On the Investment)?
The ROI (Return On Investment) or Return on Investment means the times you recovered all the money you invested in something, its formula is very simple, it is the result of dividing all the money you won or total sales among all the money that you have you spent or the total expenses.
ROI = VT / GT
It will seem very simple and it is because it really is, you do not need to be an accountant or a great mathematician to calculate it you just need to know how to get your two most important data: Your Costs and your Sales
How to calculate the cost of the campaign?
Usually in marketing this is usually as simple as the quote of the agency or the company that sold you the strategy, in case it’s something that you only did, you have to take into account all the expenses that you incur for this campaign, from stationery, papers, design, investments with suppliers, sales or promotion materials, contracting services etc …
Not only do you have to take the direct costs, also the marketing requires time and dedication, yours and your staff, and you have to take your time into account. If you dedicate time to this campaign, you are leaving to dedicate yourself to something else, this is called opportunity cost.
The opportunity cost of a person is measured in a simple way, we only have to take out the cost of one hour from this person, for example if a person works 100 hours a week and earns 5,000 thousand pesos, then every hour has a cost of $50 pesos (5000/100). Therefore, if you put this person to dedicate 10 hours of his time to the marketing campaign you are measuring, you should consider this cost.
How do I know how much money this specific campaign generated me?
The other side is to know what are the sales generated by this specific campaign, sometimes this can be complicated especially if you have no way of knowing exactly what sales were generated by the campaign. For most digital campaigns it is very easy to know, usually there is a customer action that makes you have your contact information such as their email, their phone and their name; in this way when they come to buy you, it is enough to compare with the data you get and you will know who comes from a digital campaign.
Other campaigns, both digital and non-digital, are also measured by offers. If you give a special offer or coupon for your campaign you will be able to know who arrived thanks to the campaign for the number of offers that have been requested.
Otherwise to know what was the impact of our campaign we can only guess and rely on historical data, for example: if you usually have 10 customers a day, but the month that you carried out your campaign you had an average of 12 customers , we can infer that those 2 additional clients arrived thanks to the campaign. Although this is not the best method, since we can not be sure of its accuracy, it is always better to measure something with a large margin of error than not to measure it at all.
Since you know the number of clients now it’s time to know how much money each of them represents. Again, your business may be easy to measure in this, especially if you have a sales team, you can track what the prospects bought and know exactly how much money they spent on your business but if your company does not have that facility you can always calculate the average ticket.
The average ticket is how much each of your customers spends on your business each time they go and is what you can expect a new customer to spend when it arrives at your business. You can take it by taking what all your customers of a month bought, add it all up and divide it by the number of clients you had.
Total purchases of the month / Customers of the month
Since you know how much each of your strategies costs you, you can compare them with each other and make better decisions. I have run into many business owners who judge new strategies based on their experiences and do not take into account numbers but personal opinion or perception. For business it is important to measure and control as much as possible in order to make informed decisions, you have to compare your strategies with numbers that mean something, you can not compare what a spectacular costs you and what it costs you to advertise in a magazine, simply they are not the same thing, what you can compare is their return on investment, we know they are different and they are different ways of advertising, but how many times am I recovering the investment of each one?
If you have problems calculating the Return on Investment of your strategies, do not worry, at Impactum we have prepared an excel template ready for you to just enter your numbers and have the results in seconds, you can download it at the following link: