Calculating your ROI can make or break any sales promotion.
Calculating the return on investment (ROI) of a sales promotion is indispensable in determining if your money is being spent properly. Some promotions will do nothing for brand awareness, customer loyalty or developing new customers, while others will be effective in all or one of these categories. The ROI puts the cost of your sales promotion into your bottom-line perspective.
Instructions
1. Gather data to provide more specific calculations. The type of sales promotion you are monitoring will affect the outcome. An easy way to understand what sales are related to your promotion is to offer numbered coupons or a "mention this ad" offer. Also, determine how long you will gather information. Setting clear parameters will help you calculate ROI.
2. Determine your profits. This includes subtracting the cost of the good or service you are selling. For example, a selling price of $10 minus a $3 cost leaves $7 of profit. If you sold 100 items, your profit would be $700.
3. Add up the total cost of the sales promotion. Sometimes this will be as simple as determining the cost for a print ad campaign, but other times your promotion may include fliers and the labor involved in distributing those fliers. Say the total cost of your ad campaign is $300 over the course of two weeks. Subtract this number from the total profits and you get your gross profit of $400.
4. Calculate your ROI by dividing the cost of the sales promotion by gross profits. In this case: 400/300 = 1.3. Multiply this number by 100 and your ROI is 133 percent. If your ROI is in the positive, you are on the right track. Develop ways through market analysis to increase your return.
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