Return on Investment (ROI) is one of the most important metrics for marketers to be aware of. After all, we need to know how the effort and dollars we’re putting into our marketing campaigns is affecting our bottom line. First, however, we need to define exactly what a firm means by investment. In most cases, firms define investment as the total assets of the firm. To calculate the ROI, we need the net income found in the income statement and the total assets (or investment) found in the firm’s balance sheet. ROI is calculated as follows: For example, if you invested $100 in a share of stock and its value rises to $110 by the end of the fiscal year, the return on the investment is a healthy 10%, assuming no dividends were paid. Question 1 Let’s say you bought a brand-new office suite in downtown Grand Rapids which is valued at $750,000. Five years later, you sell the property for $1,235,000. What is your ROI for this investment?
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Marketing ROI
First, however, we need to define exactly what a firm means by investment. In most cases, firms define investment as the total assets of the firm. To calculate the ROI, we need the net income found in the income statement and the total assets (or investment) found in the firm’s balance sheet.
ROI is calculated as follows:
For example, if you invested $100 in a share of stock and its value rises to $110 by the end of the fiscal year, the return on the investment is a healthy 10%, assuming no dividends were paid.
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Question 1 Let’s say you bought a brand-new office suite in downtown Grand Rapids which is valued at $750,000. Five years later, you sell the property for $1,235,000. What is your ROI for this investment?
Your Answer:
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Customer Acquisition Cost (CAC)
This metric is also known as Cost of Customer Acquisition (CoCA). There are a variety of ways to calculate CAC. It is best to split up CAC by channel, so you can clearly see the direct costs of acquiring a customer from each of the channels your company focuses on.
CAC is calculated as: Total Sales and Marketing Cost
Total Sales and Marketing cost is all the program and advertising spend, plus salaries, plus commissions and bonuses, plus
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Question 2 Let’s say we spent $650,000 between our sales and marketing teams last quarter, and we acquired 65 new customers. This would calculate to a CAC of:
Your Answer:
That means the cost to acquire each customer last quarter was $ _____________ per customer.
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Break Even Analysis
Break Even Analysis is a tool that helps an organization to decide at which stage the products or services will start making profits. In other words, it is a tool that will help the organization decides how many products or services they should sell to cover the costs.
The breakeven point (BEP) is the point when an organization starts to make profits (see below).
The important step in breakeven analysis is to understand the difference between two important and different types of cost - Fixed (e.g. insurance, rent and rates etc.) and Variable (e.g. labor, packaging, raw materials etc.) Costs.
The calculation of BEP is as follows:
BEP = fixed costs / (selling price per unit - variable costs per unit)
For example, suppose that your fixed costs for producing 30,000 small gadgets?? are $30,000 a year. Your variable costs are $2.20 for materials, $4 for labor, and $0.80 for overhead for a total of $7. If the selling price of each gadget is $12.00, then:
BEP = $30,000 / ($12 - $7) = 6,000 units
This means that selling 6,000 gadgets at $12 a piece is the breakeven point. Each unit sold beyond 6,000 generates $5 worth of profit.
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Question 3 Sweet Candy is a confectionary manufacturer. They are considering introducing a new candy, called Silly Candy. Sweet Candy wants to know what kind of impact this new candy will have on the company’s finances. Help Sweet Candy to calculate the break-even point using the following information:
The accounting costs are as follows, for the first month the product will be in production: · Fixed Costs = $2,000 (total, for the month) · Variable Costs = .40 (per bag produced) · Sales Price = $1.50 (a bag)
Your Answer:
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Price Elasticity
Price elasticity is a measure of the sensitivity of customers to changes in price. Price elasticity is calculated by comparing the percentage change in quantity to the percentage change in price.
Price elasticity is calculated as follows:
For example, suppose a manufacturer of jeans increased the price for a pair of jeans from $30.00 to $35.00. But instead of 40,000 pairs being sold, sales declined to only 38,000 pairs. The price elasticity would be calculated as follows:
At 0.30, the elasticity is less than 1, indicating that demand is inelastic.
In this case, a relatively small change in demand (5 percent) resulted from a fairly large change in price (16.7 percent), If the quantity purchased has a small change in response to its price, it is termed inelastic.
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Question 4 Let’s say we are the manufacturer of jeans increased our price for a pair of jeans from $28.00 to $33.00. But instead of 15,000 pairs being sold, sales declined to only 12,000 pairs. What would be the price elasticity?
Your Answer:
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