It is crucial to understand the success and value driven by advertising efforts. Return calculations of advertising campaigns are critical. Business leaders justify campaign costs by calculating returns that are accomplished by a campaign; however, it can be very complex to calculate these returns accurately.
To begin calculating returns on an advertising campaign you will need:
Cost of goods sold (COGS)
Unit number sold through the campaign time frame
Advertising campaign total cost
These will help with the following steps to establish a beginning point for evaluating a simplified process to assist with calculating advertising returns:
Although these instructions can be moderately challenging you will need to how many units were sold during the campaign period that can be directly attributed to the campaign. You should use product or service codes, promotion codes or coupons to correlate units that were sold for a direct advertising effort.
Now you will need to multiply these by the cost of goods sold. COGS will be the total cost of promotion, distribution, and production of the individual unit for sale. You need to determine the cost of man hours, fixed and variable expenses and material cost. This total will be divided by the number of the units you produced, giving you the COGS per unit. Then you will need to multiply this total by the units sold for the promotional effort or advertising you are measuring. You now have the COGS for your campaign.
To obtain the total cost of the advertising effort, you will add the total cost of the campaign to the COGS for the advertising campaign.
Now multiply the units sold directly linked to the campaign by revenue per unit, now subtract this from COGS for the campaign. You now have the return or gross profit of the advertising campaign.
You have now successfully calculated your return on an advertising investment. To save time when calculating advertising returns you should calculate the COGS for the unit and update your figures as needed or on a regular basis.
Make sure that you have accurate data when doing all of your calculations or your calculations will reflect poor management decisions. Make sure you calculate with critical honesty. If you are creative in the accounting of necessary sums it will result in return amounts that do not reflect the value of the campaign accurately.