Return On Your Advertising Investment

Return On Investment is a common term, but often I run into business owners who have no idea that they can calculate a Return On Your Advertising Investment.  Do you know how to do this?

First of all, I’m not going to assume that you know what Return On Investment means.  In a world filled with lingo, Return On Investment is also know as R.O.I.

Return On Investment is a simple math formula.  In simple terms, if I give you $100, and a year later you give me back $105, I had a 5% Return On Investment.  The $100 plus 5 bucks.

In the business world, the profit margins and mark-ups percents are the terms that business owners I talk with usually know off the top of their heads, which is important too.

If a business owner buys an item at $100 and sells it for $200, then his mark-up is 100% and profit margin is 50%.

Keep in mind that I’m only talking about the gross dollars, not net dollars.

Net Dollars are what you end up with after paying for everything, like taxes, wages, the electric bill and everything else.  Most businesses set themselves up to not have any money left over, which is fine.  I’m not an accountant or tax attorney so we’ll leave that alone today.

So let’s dig into this concept of a Return On Your Advertising Investment.

Step back and think about why you need to advertise in the first place.  It’s a real simple concept.

You advertise to bring in paying customers.  That’s it in 7 words. I’ll say it again:

You advertise to bring in paying customers.

Why?  Because without paying customers, you will go out of business.

But some folks look at advertising as an expense and do as little as possible.  Their businesses also grow as little as possible.

Others look at advertising as an investment and realize that the more they spend the more they get back.

A few years ago, the marketing research firm, Nielsen did an in-depth study of nearly a dozen brands and companies to determine the outcome and results of advertising.  They compared ads on radio, on television and online advertising.

The results showed that the average Return On Advertising Investment for Radio is double that of online ads and also twice as good as television advertising.

Brands averaged a sales lift of more than $6 for every $1 spent on radio ads.

And…

One retail brand delivered an almost unheard of $23.21 in sales lift for every $1 invested.

Warren Buffet would love to have a 6 to 1 return on his investments.

I’m going to wrap this up with a story from a conversation I had recently with a new business owner.

Paul instantly knew his mark-up and profit margins when I asked him, but was surprised to see how easily it would be to make money on a $2000 monthly advertising investment.  Just one or two jobs each month for his business would make him money above and beyond his advertising expense.

Return On Your Advertising Investment is a subject you need to know about and I can help.

Let’s talk!