ROI: What is it and what is the formula?
ROI stands for Return On Investment, and it is a metric which shows us the profit earned from an investment. Through a very simple calculation it allows a company to know whether a specific action has been profitable or not:
ROI= (Revenue-Expenses)/Expenses x100
This simple formula gives us the percentage of profitability of an investment. If the result is positive, it implies that a profit has been made. If it is negative, we have suffered losses on the investment.
Let’s look at a quick example.
If we invest €300,000 in organizing, executing, and communicating our event, for instance a fair, and we make €1,000,000 from ticket sales, renting out spaces, and merchandise sales:
ROI=((€1,000,000 – €300,000) / €300,000) *100= 233.3%
From this data we obtain a profitability score of 233.3%.
Why is ROI important for events?
The obvious answer is that by calculating the Return on Investment, companies know to what extent their event has been profitable.
However, the more important thing is what they can do with this number: it allows them to measure, analyze, and make decisions.
Furthermore, the process is as important as the end result itself. In order to calculate the ROI of an event many items must be taken into account, and not all of them are as plainly visible as revenue from sales.
Factors that come into play when calculating the ROI of an event
As we have seen from the formula, in order to make the calculation we “only” have to know the expenses and revenue generated by the event.
The expenses are easy to calculate, as they are plain to see and have a tangible value. On the other hand, calculating the earnings can be somewhat more complicated:
Painful but simple. It’s a matter of gathering all the bills and adding them up.
If the event is organized by an agency, it will be easy to account for most of the expenses, as they will be itemized on the same invoice.
Depending on the agency and the project, it could be that some items such as the catering, renting the space, or advertising the event will not be part of the agency’s budget and your company will have to take care of them itself. These totals will then also have to be added.
– Direct income is the amounts earned directly from the event itself, such as:
- ticket sales.
- purchases made at the event.
- money paid by third parties as sponsors or to advertise at the event.
– Indirect income: indirect income is intangible. It isn’t actual earnings, but more like savings. It tends to be those amounts derived from the impact of the event and is especially related to the event’s presence in the media.
Let’s suppose you are presenting a product and you invite a series of media and influencers from your sector to cover the event. If it is of interest to them, i.e. the content is relevant to their followers, they will attend without having to be compensated economically.
And along these lines, if you have a good communication strategy for the event, you will have planned a series of communications for during the event, through Social Media, for example.
All this media impact would carry a cost if it were done through advertising. Therefore it’s a cost that we are cutting. And it is precisely these savings that we want to calculate in order to count them as income.
So how do we calculate them?
Having a presence in the media through organic content is of great worth, as being promoted by journalists gives us credibility. To calculate the approximate value of this presence it is enough to know the medium’s publicity rates. We apply the rate that corresponds to the space required by the article: full page, half page, single column, etc…
Influencers, or opinion leaders, usually have a fee per publication or post, so we only have to know the fee of each influencer mentioning our event to know how much we’re saving.
You can calculate roughly how many people your message reaches by registering the total reactions to your post and making the following extrapolation: each user has 400 contacts on average, and in turn, posts are usually seen by around 20% of those contacts.
This way you can make an approximate calculation of how many people have seen your posts and know what it would have cost to reach all those people on Facebook, Instagram, LinkedIn, etc…
The vast majority of events are motivated by qualitative marketing objectives, related to branding, such as:
- Brand/product notoriety
- Satisfaction level
- Perception of brand values
- Brand recognition on Social Media
The quantitative value given to the achievement of these qualitative objectives depends on each brand, but once the degree of success has been defined and calculated it is important to remember to include it in the ROI formula.
With all of this data at hand we are ready to calculate our return on the initial investment we made in the event.
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