TV. Radio. Print. ROI. Individual media channel ROI has been determined showing Digital and TV advertising as the strong
True Return On Investment
by Abel Del Valle
Return on Investment calculations, aka ROI, can help determine investment profitability. This classic financial tool is widely used in the marketing profession to help understand which advertising channels are working and is usually calculated as a ratio: (Investment Revenue – Cost of Investment) / Cost of Investment. Reviewing ROI is valuable throughout a MarCom plan; however, reviewing ROI is only the first step. True ROI is accomplished through constant monitoring and optimization. Growing a more successful ROI is truly when you are utilizing the formula correctly. For example: A marketing manager with a $100K budget has determined there are four media channels that are widely viewed by their organization’s customers/consumers. So, launching all four media channels individually within their own timeframe will allow for the cleanest ROI calculation (this will help avoid any errors during performance attribution). Television, Radio, Print, and Digital are the four media channels. $25K will be allocated to each media channel for equal budget distribution. After each media buy has concluded, you can analyze each channel’s ROI:
Budget Digital
Print $25K
$25K
ROI
2:1
Radio
3:1
TV
TV
Radio Print
$25K
$25K
8:1
Digital
10:1 0
2
4
6
8
10
12
Individual media channel ROI has been determined showing Digital and TV advertising as the stronger performers. Next, optimizing the media mix will create a more efficient ROI and drive stronger results:
Digital
Original ROI
$10K
TV
5.75:1
$50K
Radio Print
ROI
$10K
Budget
$30K
Optimized ROI
7.90:1
0
2
4
6
8
10
12
Continuing to execute all four media channels will maintain the media-multiplier effect and optimizing budget allocation will increase ROI performance. A 5.75:1 ROI ratio during the original timeframe has now turned into a 7.90:1 ROI in the new timeframe thanks to media mix optimizations. That is a $215K increase in revenue, or 37% ROI growth when using the same $100K budget. This simple illustration shows just how easy it is to create a more effective ad campaign just by monitoring ROI and creating a more efficient budget breakdown. Calculating ROI is a great way to determine investment performance, but truly utilizing ROI to increase performance will make you a ROI master!
