ROI CalculationROI Calculation for Marketing: 3 Step Process
ROI Calculation for Marketing
The ROI Calculation for marketing can be done in 3 steps. The most important concept underlying the ROI Calculation is to capture the incremental numbers for both the investment side and the for returns side of the ROI Calculation.
Step 1: Capture the investment
Capturing the incremental investment is generally easier than capturing the incremental returns. The investment is made up of two components: the variable and the fixed costs. Variable costs are typically those related specifically to the insertion itself. The fixed costs may be more difficult to capture, because these may be allocated across multiple media. For example, the costs of shooting a video need to be allocated across the TV commercial and the YouTube investment to properly calculate the level of investment for a given media channel or media activity.
Step 2: Capture the returns
Returns are the most difficult to capture correctly. Typically we recommend a graduated approach, where each year, the measurement process gets better. Also, depending on whether you’re using last touch attribution, marketing mix modeling or agent-based modeling will determine which method delivers the most accurate answers. Agent-based modeling is generally seen as the technique to determine the proper attribution including all effects acting in the category, such as brand equity, external factors (such as weather), etc. Most modeling is done at the volume level, and once the attributed incremental volume has been determined, the calculation of the returns is to simply multiply the incremental attributed unit volume times the contribution margin per unit. Once this is done the returns, as measured through profit are now ready to be entered into the marketing ROI calculation.
Step 3: Execute the Calculation
This is the easiest part but requires the proper development of steps 1 and 2. The Marketing ROI Calculation is relatively simple and is as follows (Calculated as a percent):
(Returns – Investment) ÷ Investment * 100%
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