Business ROI Calculations

Mar 22nd 2011 at 5:33 AM

A Return on Investment calculator seems to be a subject that most tribes have little experience with. Usually the results come from an ROI formula that someone had invented. I think most follow the ROI=NetPfrofit over sales times sales over investment algorithm. That might be a little difficult to get your head around though.

Return on Investment is important because these statistics are used to make conclusions about whether your current marketing efforts are working or not. This way we can determine if its time to take profits for the tribe.

Before you can get to this point there must be a management detail in place. This plan should discuss what the goal of the marketing plan is. What tribes do you wish to talk to? This is your objective viewpoint. You need to have a strategy to help you accomplish the goal and objective.

What tactics will you use? How will you measure things like ROI? Is there a budget for all this and what is it? Costs and tactics are related subjects and you'll observe that your measurement system does not help with calculating ROI. But when it comes to calculating all costs must be budgeted.

The raw data , when calculated for ROI, is actually a percentage. Usually this is expressed as a dollar figure though. The ROI confusion often results when we assume that the marketing sections of the equation sum up to 0 . This is not true.

Some authors state that the first portion of the equation is actually figuring the profit percentage of sales. Which can be influenced by some marketing considerations such as sales volume and advertising.

It is suggested here that corporations work with their accounting teams to really get a determination on what net profit is. Not that you aren’t already, ay? So the accounting team should have total access to the size of the marketing investment in order to be accurate with their determination of the ROI.

At this point you can go into the other products if there are any to perform the same operation.

If the company is a non-profit, this does not mean it has no ROI. Most likely it will need to do more with less and less in the coming years and a penny saved is a penny earned here. Outsourcing projects like marketing will make it more important for enablers to provide more financial information in order to make the calculation more accurate. As social media marketing becomes more widely used this will become more true. By the way, non-profits can be sensitive about words like sales. Try to use a term like support or donation.

The big question may be , should PR and branding require ROI? Just for the sake of standardizing the Field? Does it make sense to calculate ROI on these projects?

This is an argument I would like to discuss here. Let me know what you think.



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