The Public Liability Insurance Blog

You and ROI

ROI are three letters that marketers like to talk about a lot. They stand for Return On Investment, which loosely translates as the amount of money you get back for the money you spend on advertising.

Simply put, if you spend £500 on a series of adverts, how many phone calls do you want to receive from that?

If you were to spend £500 on a series of adverts, how many sales do you need to make in order to get that money back? How many more do you have to make to actually get a profit out of it?

ROI is really simple basic stuff, but it is shocking how many people don’t pay close enough attention to it.


What to consider

It can really pay off to sit down before you do any marketing, break out the calculator and crunch some numbers to check that what you’re planning isn’t just going to be a waste of time.

First of all, work out what sort of customer you are going to be generating from your advertising and what they will be buying from you. If you are taking a very broad approach with your advertising, then work out an average sale.

To ensure the best accuracy, then work out how much of that sale is actually profit for you – if you are in the business of selling goods for example, take away the stock costs to leave you with actual profit.

Now put down how much your advertising is actually going to cost.

You now have two figures – one of how much you are going to spend and one of how much each customer will make you. Now you just have to work out how many customers you have to get in order for your marketing to be successful.


How do you make it work?

This is where you start introducing a little bit of guess work to that equation above and where a little experience and common sense might need to be employed.

If you have discovered that you need to collect far more customers than your advert will even reach, then you know that it definitely won’t work. You should also be wary if the amount needed looks ambitiously high too – remember that not everyone who sees your advert will instantly become your customer.

Working out where your conversion rate is, i.e. how many people will become your customer after viewing your ad, will take a bit of time and might follow a couple of failures, but you will get a good idea of what is and isn’t reasonable to achieve and so long as your not spending money blind then you put your business in a much better position.


Remain confident in your maths

Once you are armed with your numbers, costs and potential revenue generation, make sure you are not swayed by pushy ad-sales executives.

Whilst it is rare for an ad-sales executive to lie to you about how well your ad will do outright, they can be selective with the information they give you (for example out of readership or circulation for a magazine, they’ll normally quote whichever sounds better) and twist their own stats so they look like a much better deal than they are.

Also, you will most likely have a better idea of the best way to reach your clients, so don’t let yourself be told otherwise if you don’t think one particular channel is right for you. You’ve got numbers to back yourself up and just remember that without a good return, you cannot afford to be throwing your money away.