The ABCs of ROI
ROI is the thing against which every business investment is measured. In the non-profit world, because we have so many other measures of our success (i.e. quality of reviews, number of grants received, and capital campaigns achieved) we don’t obsess over ROI as much as we ought to.
If you’re new to the term or want/need a refresher, this article from Arts Professional in the UK is all you need. The article references a study from one of our country’s leading business schools that shows that even “for-profit” marketers aren’t necessarily that savvy.
A study from Columbia Business School revealed that marketers recognise the need to measure ROI but are unsure of what it means and how to put systems in place. Add to this the rapid growth of new digital marketing tools and the opportunities and challenges they bring and it can be hard to know where to begin.
The best place to start is this simple formula presented in the article:
ROI = (income from investment – cost of investment)
Cost of investment
I encourage you to read the entire article. It’s a great resource that helps you get your arms around ROI in a detailed and systematic way. It even has a “Five Step Plan” to improve your marketing ROI. Step number one is perhaps the most important step: Decide what success looks like and define key performance indicators (KPIs) to monitor regularly. Ask yourself what the best indicator will be for that success and what level of detail will be most useful.
Just this past week I was meeting with an arts organization and I asked them about the effectiveness of their marketing program. They neither knew how much they spent in marketing nor how much they earned back in ticket sales. Understanding and measuring ROI is essential, and ultimately it’s not that hard. Once you start measuring and reporting your ROI, you’ll be amazed at how easy it is to make decisions about what to do in the future.
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