Wednesday, October 19, 2005
How To Calculate ROI On Ad Spend
It's not often that I read a forum or discussion on anything, there's just not enough time in the day to monitor every blog and discussion forum out there. But there are times I come across something that's kind of interesting and should be shared with you. Today I got an email notification from Soflow about a new post in the Creative World group and the post was about ads and determining Ad spend ROI. I thought it was good so here's the original post and a users response to that post.
“We are a full service advertising agency and among others have a supermarket client that has been doing business with us for few years now. We do a (two page spread) tactical product ad for them every Monday. Recently the client raised the issue of Return on Investment on this ad. He wanted to know what were some of the ways we could quickly calculate ROI. So I am trying to prepare a list which would include the overall sales differentials on the day(s) of the ad, differentials in traffic, coupons brought in (if any), the differentials in the amount of the featured products sold vis-a-vis other days, etc.Just to be clear, I'm not asking the question, this was posed by a user of Soflow... [carry on].
What would be some of the other Key Performance Indicators that I could include in this list? Are there other ways of calculating this kind of retail ROIs? How do we factor in the effect on Brand equity for each ad? Does anyone have experience with a similar situation?”
Response To Ad Spend ROI Question
“...you didn't make it clear what channel you're referring to, so I've assumed Press.I love it when people define any metric using a specific formula or describe the variables used as well as what each variable means and where they're pulled from, that's good stuff. Now go measure your Ad Spend ROI in the press :)
One of the best ways to evaluate ROI on an ad like this is to start a testing matrix.
Presumably you use a grid structure for the ad?
Essentially you need to start thinking of your ads like Retailers think about floor space - if you use a grid structure in the ad's you can allocate a % of the overall ad cost to different quadrants.
For example, in a full-page press ad, products placed in the top left are generally noticed more frequently than those featured in the centre right.
The amount of space given to a particular product in an ad should be directly connected to the amount of stock the retailer wants to shift, how good the offer is and how much return your client can expect from each product.
Every week, you need to evaluate how different factors influenced sales etc...If you build in coupons or other response mechanisms you'll gain a much clearer view than just measuring sales.
Anyone involved in retail/FMCG knows that over half of all purchase decisions are made in-store...even people with clear purchase intentions can be swayed once they reach the store due to competitive offers, how easy it is to locate product etc...so it can make measuring advertising very tricky without direct response mechanisms like coupons.
I could go on, but...”
Posted By Jason Dowdell at 09:39 AM
Permanent Link: How To Calculate ROI On Ad Spend
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