ROI Methodology

*I originally presented this walkthrough of the concept of ROI as a complete analysis was originally done as part of a sales training meeting for Terrapin Beer Co.*

Marketers often hate hearing the term “Return on Investment” - especially from an accounting department. I was lucky enough to spend a week with the ROI Institute learning how marketing can better utilize not just the term ROI, but also the concept as a larger analysis tool.

Most people have heard of ROI as a simple calculation, but it can be extended into a comprehensive process of understanding the benefits, costs, and overall viability of a project.

In beer sales, we are often presented with new ideas for sponsorships, events, and opportunities from venues, bars and restaurants, non-profits, and even bike races.

When looking at ROI as a simple equation, the benefit that comes to mind is sales (referred to as sales to retail from our distributor to the bar/restaurant/venue that is going to sell it).

In reality, there are a lot more that goes in to the benefits of a sponsorship, for example.

That includes (but is definitely not limited to) things like brand awareness, opening doors to future opportunities or building relationships, or follow on sales.

Brand awareness can be tricky a tricky thing to calculate (and requires a little extra data), but it can be a powerful benefit. Where awareness data is available, you can look at event attendance and demonstrate an increase in sales after the event (follow on sales) by walking through the marketing funnel.

For one of our events in 2019, I calculated that we increased sales by thousands of dollars by increasing our brand awareness. You can read about that process here.

As you consider benefits beyond immediate sales, you also have to consider costs.

For many projects, the largest cost people forget is time. The salaries and wages of people working on projects should be included, especially if you’re asking someone to work on something that would take away from another revenue generating activity or bringing in extra part time employees to complete the project.

Other costs that go in to many marketing projects are materials, giveaways, product samples.

Once you’ve collected the list of benefits and costs, it’s important to assign dollar values to as many as possible.

The key to this step is to over estimate costs and underestimate benefits. As someone in marketing or sales, it’s natural to want to inflate the benefits to sell the project or idea. However, presenting the most conservative return allows you to manage expectations and understand the minimum impact. Then, when you find ways to increase benefits or decrease costs, you’ve added more value for your company or department!

After assigning value to all of the benefits and costs, you can plug it back in to the equation: ROI = (benefits - costs) / costs

Is your ROI over 100% - clean that spreadsheet up for presentation and you’re good to go! If it’s not…

ROI doesn’t always have to be 100% for a project to be given the green light. Some larger companies have established minimum and maximum ROIs for different type of projects. (All companies should, in my opinion).

There are a few options if your ROI isn’t at 100%, or whatever leadership deems “Fundworthy”

• Negotiate costs - Is an event asking for a sponsorship spend that may be flexible? Or can you remove other costs (like workspace or headcount)?

• Increase benefits - In the beer industry, bars often ask suppliers to do sampling events that require beer purchase. Is there a way to get them to bring in more product to increase the Sales to Retail?

• Consider intangibles - Social responsibility, for example, is often extremely hard to quantify in dollars. You can argue it gives you good PR, it’s the right thing to do, and that it will attract new customers. Intangible benefits may make a project that doesn’t have a 100% ROI worth it in a way that people can get behind.

• Walk away - its ok to walk away from a project or idea. I think a lot of times people push to have their ideas implemented because they came up with it. It’s ok to look at the ROI and say “maybe now’s not the right time”… who knows, in a few months another benefit will pop up or a cost will disappear that make the project relevant again!