Do you have a reliable measure of return on investment (ROI) for your marketing strategies? Evermore these days it seems as though effectiveness of the budget dollars allocated to a department is being measured more carefully, meaning a contribution needs to be demonstrated. Calculating this contribution for one individual tactic is a relatively easy task. For example, let’s say you are trying to decide if you should attend an upcoming industry trade show. While there are many reasons to attend a show, this example is going to look at the economics surrounding the “go/no go” decision.
To prepare and attend the show will cost approximately $5,000. The average sale made to customers at the show is $2,500. Therefore, it will take two sales at the show to break even. Four sales would yield a 100% return. If attending the trade show is going to help make two additional sales, then it’s probably worth considering but let’s say the economics worked out differently and it was going to take 20 additional sales to pay for attending the show. Then it’s probably not worth considering.
While ROI measurement is possible for some activities such as the trade show example, many times the direct contribution of all marketing strategies is more difficult to measure. One solution to this difficulty would be to evaluate the productivity of your marketing strategies by calculating your Net Marketing Contribution (NMC). Net Marketing Contribution is defined as the total contribution produced by a marketing strategy minus marketing expenses needed to produce it.
Net Marketing Contribution utilizes the same financial performance information used by everyone else in the company to evaluate success or failure. By utilizing this information, it is easier to demonstrate how marketing strategies contribute to overall profits.
Once the Net Marketing Contribution has been determined, it is then easier to determine your marketing ROI. Marketing expenses are direct fixed expenses that vary with market strategy, such as sales force expense, advertising expense, customer service, marketing support, sales promotions, and marketing administration.
- Business acumen compels the need to demonstrate a positive contribution on investments in all business units.
- Traditional ROI calculations can be useful in determining the return of individual marketing tactics.
- When evaluating multiple marketing strategies, Net Marketing Contribution (NMC) can be a better measure than traditional ROI calculations.
- NMC utilizes the same financial information used by others in the company to calculate success or failure.
- Once NMC is calculated, it can then be used to demonstrate marketing ROI.