Maximize Return on Advertising Spending

Maximize Return on Advertising Spending

Great advertising delivers results. For many, the easiest way to determine advertising effectiveness is the metric Return on Investment, or ROI. But before we dig into the math, let's look at where you can place advertisements. In general, you can use:

  • Print (primarily newspapers and magazines)
  • Radio
  • Television
  • Direct mail
  • Billboards (and other forms of display advertising)
  • Web

How do you decide which medium to use? Put yourself in your customer's shoes. Who is your audience? What do they consume? Where can you "find" them?

In many cases you will use a combination of mediums to reach your target audience. For example, you may decide to place advertising in a local newspaper and on local radio. If you hope to attract national or global customers, web advertising is likely to be your best and most cost-effective choice. If you operate a hotel, a combination of web advertising and strategically-located billboards might be your best option. The key is to "go to" your customers and make sure the right audience sees your message.

Evaluating Effectiveness

Then track your results. An easy way to evaluate advertising effectiveness is to determine your Return on Investment, or ROI. ROI is a calculation that can be applied to almost any type of spending. For our purposes, we'll use ROI to evaluate advertising spending.

The equation is simple: ROI = (Return – Cost of Investment) / Cost of Investment X 100.

For example, say you decide to run an email marketing campaign. You spend $2,000. As a direct result of the campaign, you generate $10,500 in profits.

10,500 – 2,000 = 8,500; 8,500/2,000 = 4.25, or 425%. Your ROI is 425%.

The higher the ROI result the greater the return and the more successful the advertising campaign. At the very least advertising spending should create a break-even result, with the cost of the advertising at least equaling the amount of profit made as a result. To maximize advertising efficiency, your goals should be to achieve ROI results that are a multiple of direct spending – in fact, the higher the ROI the better.

Keep in mind ROI is not only useful for determining advertising efficiency; it can be used as a quick way to determine the value of any kind of spending or investment. It's a simple tool, but it helps provide a quantifiable answer to a very basic management question: "Should I do this?"

One of the problems with measuring advertising effectiveness occurs when you run ads in multiple mediums. For example, say you currently are running print advertisements and television ads; how do you know which type of ad produced additional sales? In many cases you won't – and that may be okay as long as your total investment is paying off. But if you want to truly measure advertising effectiveness you'll need to find ways to track results more closely. One way is to modify your ads slightly; you could create different advertisements for different products and display those ads in different places. For example, if you sell cookware, you might decide to advertise a specific line or brand of products in print and another line on television. While different lines may get a small "bump" in awareness even if they are not featured in a particular advertisement, you will be able to more closely track the performance of specific ads.

Separate Awareness from Direct Response

Some mediums work better for creating awareness; for example, you might use television ads to increase overall customer awareness and enhance your brand while using direct mail to advertise promotions or specials. If that is the case, evaluating advertising effectiveness is relatively easy: If you create a direct mail piece offering a 10% discount on certain services, you can quickly determine how effective the ad was by how many customers take advantage of the offer.

In order to determine effectiveness, first make sure you determine your goals. If you don't know what you want your ads to achieve – how will you know if you are successful? The best ads create a call to action for customers… so make sure you determine which action you hope for. That will make measuring effectiveness and making smart improvements to your advertising campaign a lot easier.

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