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Calculating ROI

At my very first marketing job in the early 90's, I was given an enormous project that no one else had wanted to tackle. I created a cost savings analysis to show customers how much they would save using our products. (The products where Token Ring network adapter cards that competed with IBM and Ethernet.) My undergraduate degree was in history. Nevertheless, I used common sense and put together straightforward financial calculations, combined them with marketing benefits and Voila, potential customers saw their return on investment. We used this model with many clients, and I rolled out the project both in the US and Europe.

Since then I've gotten my MBA. I've learned the more complicated side of finance and accounting. Looking back at my calculations, they were very simplistic. However, that may not be bad. Every marketing book you read talks about the importance of ROI, but most doesn't tell you how to figure it out.

I recently had a client who wanted to know his ROI on his advertising in the newspaper, and other local listings. The spreadsheet I created was basically:

1) List all marketing efforts and associated costs

2) List how customers found out about you. (yes, you have to ask them)

3) Calculate how much these customers spent.

4) Divide by how much you spent on each marketing campaign.

= ROI for that campaign.

He loved it.

OK, I know this is WAY too simple to calculate real ROI, especially if there are long lead times and sales people involved. But since most companies don't do anything at all, a simple ROI may be better than nothing.

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