August 3, 2009
Filed under: Sales Dish of the Day
The basic ROI formula for the ad specialty industry, according to Gerry Barker, president of Barker Specialty Co. Inc. (asi/132690), is to subtract costs of the promotional campaign from the campaign’s objective, then divide that number by costs again: (objective - costs)/costs.
“For this formula to work, the objective and the costs must be both stated in either dollars or in some other category, but they must be the same,” he says.
Here are two examples:
1. Safety Program: A company wants to reduce employee accidents over the upcoming year after incurring five accidents out of 10,000 man-hours worked last year. It institutes a safety program using a promotional product campaign that costs $10,000 for the year. At the end of the year, there were only two accidents at the company. Based on the reduction in accidents, the company determines via its insurance company the reduced premiums for the coming year. If premiums would have increased by $60,000 if not for the program, the calculation is ($60,000 - $10,000)/$10,000, for an ROI of 5, or 500%.
2. Sales Achievement: A mailing that includes a promotional product is sent to 500 people and results in 25 of those people calling the company and placing an order. Each order is valued at $100, resulting in $2,500 in sales (25 x $100). Since the mailing and products cost a total of $1,000, calculate ($2,500 - $1,000)/$1,000 for an ROI of 1.5, or 150%. Also, use ASI’s Ad Specialty Impressions Study (download a copy at www.asicentral.com/study) to show that the cost-per-impression of promotional items is far less than almost all other mainstream advertising media. – Shane Dale