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LOOMIS Agency President Mike Sullivan discusses a tried and true approach to calculating marketing ROI with a strategic marketing plan.
As more scrutiny is placed on the bottom line, many companies demand to know more about the expected and realized return on investment for any marketing plan. Investment in and measurement of the success of any program always comes back to “what’s the return.”
While the value of brand awareness and recognition is a very important piece to any marketing plan, it is often very difficult to calculate in terms of conversion to sales. Still, there are techniques that can be used to validate a marketing plan before implementation, and these same techniques can also be used to measure it during and after execution.
To calculate a marketing plan’s expected ROI, you need to compile the following information in a ROI calculator:
Market Vehicle Used. Take every marketing vehicle and enter it into your ROI calculator even if the vehicle has no cost. Be sure to include ALL marketing expenses, including labor (staff and outside services), brand awareness activities (public relations, advertising, speaking engagements), marketing communications (print and Web), and direct marketing activities (direct mail, email, search engine ads).
Number of Impressions Made. For each marketing vehicle, enter the number of impressions your vehicle will make each month (i.e. How many mailers are going out? How many attendees are coming to the show? How many readers will read the publication? How many guests will attend the seminar? etc.). If you can’t quantify the expected impressions for a vehicle (some vehicles are in support of the overall program, but can’t be easily quantified), use “0” as the number of impressions and include its cost in the ROI equation.
Expected Response Rate. For guidance on industry response rates, consider purchasing a DMA Response Rate Study. Otherwise, we recommend you use your past metrics. If you do not have a benchmark, and many of you don’t, you will need to make a conservative estimate based on your best guess, or hire a consultant to guide you.
Annual Cost. For each vehicle, you will need to calculate the annual cost to implement.
Average Lead to Proposal Ration and Average Close Rate. To truly calculate ROI from the above information, you will need to know (or be able to estimate) your lead to proposal ratio. That is the percentage of leads that become proposals, on average. Additionally, you will want to know your company’s average close rate. That is an average percentage of proposals, bids, or cost estimates that you win.
Average Annual Customer Value (Sales). Finally, you will need to know (or be able to estimate) the average annual customer value in terms of the average sales per customer per year.
From the above you should now be able to ESTIMATE how many leads your program should generate (given messaging, right mix of vehicles, appropriate target market, solid product offering, etc.), how many customers you should convert, and therefore your return on investment.
A recommended ROI formula is:
NUMBER OF IMPRESSIONS x EXPECTED RESPONSE RATE = LEADS GENERATED PER YEAR x LEAD-TO-PROPOSAL % = NUMBER OF PROPOSALS x CLOSE RATE = NUMBER OF CUSTOMERS x ANNUAL CUSTOMER VALUE = REVENUE - TOTAL MARKETING EXPENSE = ROITo learn more on budgeting your strategic marketing plan, see "How to develop a budget for achieving ROI with your strategic marketing plan," by Mike Sullivan, president of the LOOMIS Agency.
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