Use the Payback Ratio to Report and Compare the Value of Your Events
A great tool for conveying the value of your marketing events is the payback ratio. This is the ratio of the total value of estimated revenue, cost savings and promotion value gained through event activity, divided by the event cost.
It is expressed as:
Total Value of the Event ($)
Total Cost of the Event ($)
The payback ratio serves not only as an indicator of event efficiency, but also as a useful way to compare past, current and future events.
To determine the payback ratio, you will need to have numbers, or reliable estimates of the four main categories of value derived from marketing events:
Value #1 – Revenue from Sales Opportunities
Everyone wants to know this number, yet it is the most difficult to find. Often, many people are involved in many steps required to close a sale. And, the sales cycle may span years. It is possible to estimate probable revenue impact using internal assumptions, such as a “close ratio” associated with well-qualified event leads and an “average value of sale” for sales from those leads. The best approach is to discuss these assumptions with your sales team and get their agreement.
It is also best to have the sales team define the “next step” expected of people who become leads through interactions at an event. Use “closed loop” systems such as sales automation, warranties, registrations and other types of tracking aids when available.
Value #2 – Retention and Growth of Current Revenue Base
Customer Relationship Management (CRM) is critical for virtually all organizations. Existing customers and the revenue gained from their purchases are usually the most profitable. This is a valuable element of a profitable event. Keeping customers up to date and reassuring them that you can fulfill their needs, while at the same time thanking them for their business and helping them see that their relationship with you is valued can have a direct and measurable impact on retention and profitability.
Just as most companies have a defined cost of sale number, there should also be one for cost of CRM. A significant percentage of that cost/value may be accompanied through event activity. As an example, a company might spend five or ten percent (5-10%) of account revenue on customer service and retention activity. A company might estimate the value of a customer dinner with executive held during an industry event at one percent (1%) of your overall CRM effort for those customers for the year. The value estimate would be $0.001/dollar of existing revenue among customers seen at the event. This may not sound like much until you consider that these revenue numbers can be in the hundreds of millions of dollars for a large company. For smaller companies, the impact of such an event is likely to be a much higher percentage of the overall CRM effort. Sometimes these “customer events” are the major CRM activity for the year so somewhere around 20 percent (20%) or more may be reasonable.
Accomplishing CRM goals is valuable for companies large and small and definitely contributes to event value. Discuss how your company might determine a value of CRM activity at marketing events. Don’t forget to take credit for the cost savings made possible by using the event as an opportunity.
Value #3 – Cost Savings / Expense Avoidance
Substantial cost savings and expense avoidance may be achieved through trade show activity. Events present “one-on-many” and “many-on-many” opportunities. This element of value is the most tangible and traceable source of ROI for an event. Large numbers of people in your market universe may be gathered in one place, thinking about the same concentrated range of topics. Prospects, customers, suppliers, allies, analysts, press, executives, sales, product management and marketing are all at a single event. The number and types of potential interactions are huge. Your event plan should have specific tactics to maximize the time, place and focus opportunity made possible by the event.
Be sure your event activities are aimed not only at the income side of the profit equation, but the cost side as well. To ensure that these benefits happen requires dialogue with those managers who can take advantage of the opportunity the event provides. They may also help you estimate the value of doing multiple things at an event instead of doing them one at a time in the future at additional expense.
Reporting these results in your event measurement report will add credibility and financial justification for your investment beyond the primary goal of increasing sales.
Value #4 – Promotion Value
This is often the least reported source of ROI, but promotion value at a marketing event provides real, identifiable value by evaluating the impressions that your company of brand gains through gross and targeted impressions.
“Gross impressions” are those that fall on the eyes and ears of anyone. “Targeted impressions” are those that fall on the eyes and ears of those who fit your target profile. The total impressions are the sum of all gross and targeted impressions made as a result of show budgeted activity. These activities often include promotion activities in direct marketing, media, social platforms, show exposure and exhibit exposure.
Discuss how you might value the exposure generated for your company with those responsible for corporate communications, advertising and PR.
One method of calculating promotion value is using “ad equivalency” values. This is derived from an equivalent advertising cost that accomplishes a similar promotional impact on the targeted audience.
It is less popular today to use “Ad Equivalency” values, although we believe that it is undeniable that exposure through an event has a least the same value as what would be derived from paid advertising. However, it is still useful to report promotion value in terms of total impressions made at marketing events and to make comparisons with the exposure of your company versus that of your competitors.
Alternative measures may include the cost of time to implement a promotion activity, setting a prominence goal and how it was achieved, or how the coverage gained prominence year-over-year.
Once you have identified and estimated values for some or all of the four elements of value, add them up and divide them by your event cost. The result is a useful index of event profitability or return on investment.
Using the payback ratio as an index is a great way to convey the value of your marketing events. It provides qualitative and quantitative analysis of events and often times helps to facilitate a discussion with executives. Remember to use the payback ratio as a simple success model for your event marketing program, as well as a future planning tool.Tweet
March 27, 2017