Re: ROI formula

From: Monique Littlejohn <Monique.Littlejohn_at_webbase.com>
Date: Fri 25 Aug 2000 11:05:18 -0700

JONATHAN ELDER <JonathanE_at_xtowntraffic.com> WROTE:
> Does anyone know commonly used formulas for return
> on investment (ROI) or what resources have them?

Hi Johnathan,

ROI is like prophesy and Economic formulas. You
develop them and hope that they work out. I have been
using historic response rates and combining them with
sales conversion rates. When historic response rates
were not available, I would look into industry
averages. When sales conversion rates weren't
available, I would go to the Sales Manager, take a leap
of faith, and ask for his gut feeling for conversion
rates.

Here is the formula:

ROI= (Impressions x Response) x conversion
ROI$= ROI * Cost of product

Suppose that you had a mailing list of 1000 past
purchasers of your software and you wanted to pitch an
upgrade of your software. Previously, you received a
15% response rate for upgrade message direct mail such
as a postcard. Your sales team converted 5% of the
respondents. The above formula gives you 7.5 sales.
If your software sold for $199, your ROI$ would be
$1,493 on this project.

Next, I look at the numbers and I listen to my gut. If
the numbers seem too high, I reduce the conversion
rates or response rates and recalculate the formula.
Since I am in Marketing, I would rather undersell and
over deliver rather than make outlandish promises on
ROI, because not only will I be held accountable for
these numbers, but if my marketing plan is approved,
the President and Board of Directors will be
accountable to the shareholders.

Good luck! You've got a big job ahead of you!

Monique Littlejohn, Marketing Consultant
Expertelligence, Inc.





Received on Fri Aug 25 2000 - 13:05:18 CDT