Your advertising/marketing serves several purposes for your company. One of the most important purposes is generating short term sales. Here's a simple formula to calculate the ROI (Return on Investment) of an advertisement:
- First, pick one particular advertisement you use consistently.
Determine how many sales/conversions came DIRECTLY as a result of THIS SPECIFIC advertisement.
Note: If you aren't currently tracking the conversion ratio of your ads then you're not advertising efficiently! Don't assume it's working—make sure it is! Contact us now to learn how.
- Jot down both the total number of sales (conversions) and also the total amount of all the sales combined (gross revenue). Be sure to only include sales/revenue generated by this particular advertisement.
- How much did your advertisement cost you in expenses? (Combine total cost for design, media placement, printing, mailing, labor, etc.)
- (Hopefully) your ad's revenue was greater than it's expenses. This indicates a profit. Take your revenue and divide it by your expenses.
- If the number is 1 then you broke even. If less than 1 then you lost money. If greater (i.e. 1.2) then you made a 20% return on your investment.
You should monitor your Advertising ROI on a consistent basis to make sure you're not wasting your money by using ineffectively-designed ads or poor advertising medium choices. Track your ads to be sure where your sales are coming from. What if 100% of sales are calling from the phone book instead of a different ad you're paying for?
Your advertising is an investment. It should either be paying for itself in the short term or effectively serving a purpose towards the long term. EAS will make sure your ads are effectively-designed and help determine the best media for you to advertise in. We also use tracking protocols for your ads so you can Be Sure Your Ads Are Making You Money.
Brian S. Holmes is the President/Creative Director for Effective Advertising Solutions LLC, an advertising agency/design firm. EAS is a small, personalized firm that helps small businesses become successful by working with any size advertising budget to make strategic decisions for how to position and brand the company, decide where they should advertise, design effective results-oriented advertisements, and help manage their marketing program. Check out his web site at www.EASinteractive.com