Calculating the Return on Investment (ROI) – Basic principles and case study.



So what is it?

“Often our employers will ask us for an explanation on why we are spending money or time on a certain activity. They will ask us what is the ROI or return on investment.

And how do you calculate it?

To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment and the result is expressed as a percentage or a ratio. The return on investment formula: 

What are the tricks of the trade?

There is no specific rule for calculating ROI in the business events industry, but there are many methodologies that will ensure your team members are commercially minded and take into consideration resources utilised and outcomes achieved.

ROI calculations for marketing campaigns can be complex — you may have many variables on both the profit side and the investment (cost) side. But understanding the formula is essential if you need to produce the best possible results with your marketing investments.

For marketing ROI, the tricky part is determining what constitutes your “return” and your true investment. For example, different marketers might consider the following for return: Total revenue generated for a campaign (which is simply the top line sales generated from the campaign).

Gross profit, or a gross profit estimate, which is revenue minus the cost of goods to produce/deliver a product or service. Many marketers simply use the company's COG percentage (say 30 percent) and deduct it from the total revenue.

Net profit, which is gross profit minus expenses.

On the investment side, it is easy for marketers to input the media costs as the investment. But what other costs should you include? To execute your campaign, you might have:

• Creative costs

• Printing costs

• Technical costs (such as email platforms, website coding, etc)

• Management time

• Cost of sales (e.g. if you are providing further discounts to win business)

Let us consider a case study

In this case study the objective for a MICE venue is to increase event revenue within a three≠month period (recognised as a particularly soft time). First you require your benchmark, let's say an average over the last three years of the same period.

The owners of the property are looking for 25 percent growth in revenue and are prepared to lower percentage profit in food and beverage (F&B) plus invest 10 percent of overall revenue growth to achieve it. Therefore to achieve $50,000 growth you have $5,000 to play with, on top of the usual spend of $20,000 marketing spend on previous periods.

Let's look at this in a table which indicates the last three years' overall demand and actual business as well as averages to provide the benchmark.

Therefore, to achieve $250,000 in confirmed events over the period, there are a number of ways to go about it:

1.  Increase inquiries

2.  Increase conversions

An integrated strategy is therefore required along with measurement of that integrated strategy. All of which would need to be set up in advance to measure the success, and everyone involved would need to understand the methodology.

To increase inquiries, a promotion was created whereby the culinary offerings over the period of the promotion would be upgraded and the campaign was called Eat like a King. 

Post an instagram photo of yourself with your favourite meal looking like royalty and tag #eatlikeaking #nameofvenue and automatically get your meeting upgraded at “name of venue”, which includes:

1.  Barista-made coffee at every break

2. Extra hour of canapÈs at the welcome cocktail party

3. Complimentary breakfast for all delegates

4. Dessert buffet at gala dinner

Plus, the contributor of the winning photo would appear in Biz Events Asia.

This type of activity required advertising in traditional MICE media (Biz Events Asia), creatives for Instagram and Facebook as well as an EDM to all past meeting planners.

This cost was $11,305 but, with a contingency factor, the budget was put in as $15,000. The goal was to increase inquiries for the period to a minimum of 120.

To increase conversions the team of five sales persons were then going to be incentivised as follows:

Now for the results:

For the sales personnel, their conversions were 22 percent, 25 percent, 35 percent, 41 percent and 50 percent, which meant the cost of payout was $3,000 for three of the staff. But, because the venue was so happy with the overall result, they provided an additional $500 to each staff member for the team result, which was a total of $5,500 (still less than what the budget might have been).

Some extra spend went on social media to boost the posts:

So, for a marketer of a venue, success looks like the following:

1. You measure and track the ROI of all of your marketing investments

2.  Your campaigns deliver the highest possible return and you are able to improve them over time

3. Your organisation understands and agrees with the choices you make because there's solid data to support your investments

Other things to consider

1.  The lifelong value of introducing a new meeting planner into your business

2.  The time taken to put together all elements of this promotion

3.  Whether the additional inquiries are attributed to the increased exposure the campaign created

4.  What number of inquiries actually came in as a direct result of the campaign

5.  What social media reach and engagement you received and did it directly relate to bookings

Conclusion

As with all methods of marketing, data is king. The more we know about our customers; why they choose to inquire with us in the first instance, why they decide to confirm or to choose another and whether they will come back or recommend, are also very valuable pieces of qualitative information that a marketer needs. With proper training and a good CRM, all of these can be at your marketer's fingertips. 

Additionally, the real bonus is when finance and marketing agree that the money is well spent, as the return is quantified.



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