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C A L C U L AT E R E T U R N O N I N V E S T M E N T + Know how much you have spent on your marketing activities. + You need to consider all costs, such as advertisement rates, printing and design costs, but also consider labour costs (hourly rates including your own), additional resources and equipment required to make your marketing activity happen. + Compare your costs to how much money (sales revenue and profits) you think can be attributed to your marketing activity and present it in a dollar term to see if it is worth it.
COST PER LEAD/CONVERSION + I’m going to explain a formula that enables you to allocate a dollar amount to how much it costs to get a new lead and convert a lead. + This also helps you to identify the proportion of leads you're converting. + Once you know these figures you can easily set yourself a benchmark and then regularly monitor and measure your success against the figures. + Your overall aim is to increase the proportion of leads vs conversions, overall number of conversions and decrease the dollar figure per conversion. + Once you know what dollar figure per customer you're targeting you can also set yourself more realistic marketing budgets. + Some software programs and analytics programs have built in functionality to measure specific campaigns and their contribution to leads and sales, but this is mainly for online marketing activities and sales.
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M A N U A L R O I C A L C U L AT I O N S + You can manually calculate how much getting a customer costs when it comes to all of your marketing activities with the following formulas. + You will need to choose a time period for calculating the following figures and apply it across all the formulas. You could choose a 12 month period, a month or the period of a specific marketing campaign. Marketing cost per lead (for X time period) = marketing costs (for X time period) / Number of leads (for X time period). Marketing cost per conversion or sale (for X time period) = marketing costs (for X time period) / Number of conversions or sales (for X time period).
MARKETING ROI + You can take this a step further and calculate (from past sales data) the average value of each sale or new customer over the same time period and then calculate return on investment (ROI). + If you have a type of business that typically holds onto customers for more than 12 months than calculate the average LIFETIME VALUE of that customer. + Your marketing ROI is the total value of your new customers or new sales over the time period or lifetime value of your customers minus the marketing costs OR Marketing ROI = Sales revenue - Marketing costs (for X time period) Of course the above formula only considers revenue so it doesn't take into account other overheads that will affect overall profits but it does indicate the relationship between your marketing spend and sales. This is then another measure or benchmark you can use for future marketing campaigns and activities.
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NEW CUSTOMER ROI + Finally you can calculate the Marketing ROI of each new customer by using the following formula: Marketing ROI of each new customer = (Sales revenue - Marketing costs)/ Number of new customers + Finally you can also express Marketing ROI as a percentage with the following calculation: Marketing ROI % = ((Sales revenue - Marketing costs)/Marketing costs) x 100 + The percentage figures can seem a little on the high side but they once again will show the correlation between marketing spend and sales.
S A M P L E C A L C U L AT I O N S + ANNUAL MARKETING COSTS $10,000.00 + NUMBER OF (TARGET) LEADS IN YEAR 1000 + NUMBER OF (TARGET) CONVERSIONS IN YEAR 300 + MARKETING COST PER LEAD
$10.00
+ MARKETING COST PER CONVERSION (CUSTOMER) $33.33 + AVERAGE VALUE OF EACH NEW CUSTOMER OVER 12 MONTHS (SALES REVENUE) $500.00 + TOTAL VALUE OF NEW CUSTOMERS OVER 12 MONTHS (SALES REVENUE) $150,000.00 + OVERALL MARKETING ROI AFTER 12 MONTHS $140,000.00 + ROI OF EACH NEW CUSTOMER AFTER MARKETING COSTS OVER 12 MONTHS $466.67 + MARKETING ROI% 1400.00%
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