Calculating the returns of a specific advertising campaign can be critical to understanding the value and success driven by the advertising effort. By defining the returns generated by a campaign, business leaders know if a campaign costs are justified and if it is worth repeating. Unfortunately, accurately calculating advertising returns can be detailed and complex. However, a simplified process to calculate advertising returns is outlined below. Following these steps will provide a starting point for your evaluative effort.
Instructions
1. Determine the number of units sold during the campaign that are directly attributable to the campaign. Use service or product coding, coupon or promotional coding to connect units sold to a specific advertising effort.
2. Multiply these by the cost of goods sold. COGS is the total cost of production, promotion and distribution of each unit offered for sale. You will need to quantify the cost of man hours, material cost, fixed and variable expenses. Divide this total by the number of units produced; this will be the COGS per unit. Multiply this total by the units sold because of the specific advertising or promotional effort you are measuring. This gives you the COGS for the campaign.
3. Add the total cost of the advertising campaign to the COGS for the campaign. This gives you the total cost for the advertising effort.
4. Multiply the number of units sold that are linked to the campaign by the revenue per unit, then subtract this from the COGS for the campaign. This will give you the gross profit (or return) on the advertising campaign.
