CALCULATING ROI FOR ADVERTISING COST
Expenses related to promoting a company, a product, entity, brand or service is defined as Advertising Cost. Advertising costs can be regarded as a type of financial accounting. They are either recorded in the balance sheet first or income statement.
Advertising Costs are only recorded in the balance sheet as an asset Known as prepaid expense. This means they are expenses paid in advance. These costs are moved to the income statement of the financial account when the sales directly associated to the costs come in.
Return on investment, or ROI, is a performance measure that determines the ratio of a profit or loss made in a fiscal year (one-year period) expressed in terms of advertising cost. ROI is shown as a percentage of increase or decrease in the value of the investment during the year in question.
To get the percentage you have returned on your investment, ROI is simply calculated by diving the net profit derived from an investment by the initial advertising cost of the investment. Net Profit is subtracting the initial advertising cost of investment from the current value of investment. Because ROI is in percentage, comparison of investments in advertising costs are easier.
The basic formula for ROI is ROI = Current Value of Investment – Cost of Initial Investment (Net Profit) * 100 Cost of Initial Investment
While the average advertising cost is calculated by Marketing experts and agencies which, recommend that small businesses spend anywhere from 7-8 percent of their gross revenue on marketing. And, according to a study, small businesses tend to follow this rule, of average cost, spending around 3-5% percent which is the minimum in investing.
Does Advertising still stand a chance today?
Advertising is a form of communication used to encourage and persuade customers to make a purchase. Through advertisements, customers are exposed to the knowledge of a product or service. This includes the benefits and prices of new or existing products. This is a common technique used to influence people’s minds and encourage more sales.
Promoting your business is the key ingredient to making your business successful. Promotion, along with a great product, key placement, and a customer friendly price, will help a marketer work his way to the top.
Do you know that Nigeria’s Mega Companies spent N143.7 billion on marketing expenses in 2020
According to a PWC report on entertainment and media, Nigeria’s entertainment market is poised to reach $10.8 billion (N4.4 trillion) in 2023, having reached $4.5 billion in 2018. The report stated that Nigeria’s E&M market is dominated by internet revenue, indicating a foreseeable growth in this sector in the coming years and increasing advertising cost.
The report also projected Nigeria’s total advertising revenue at $483 million (N193 billion) in 2020, with the internet accounting for 20.5% of the total. The study revealed that although television advertisement will remain the advertising leader in Nigeria by 2023, internet advertisement will outperform TV ads in terms of net additions.
What do I consider before choosing where to Advertise?
In actuality, there is no one best medium for all similar units. What is “best” is decided by unique individual circumstances. The actual selection of the best medium for a particular advertiser will depend on variables like product research, target audience, market analysis, etc.
Choosing the right marketing channels is an integral part of promoting your products and services.
However, in general, the following should be considered before choosing an advertising channel.
I. The nature of the product
A product needing demonstration warrants television and screen advertising. Industrial products find favor of print media over broadcast media. Other products like wine, alcohol, and cigarette are never advertised on radio, television, and screen.
II. The type of selling pattern
It is more of the advertising demand that decides the proper advertising channel. Advertisers may be interested in attracting prospects through color advertisements. In that case, magazines, films, television, billboards, bulletin boards serve the purpose.
III. Potential market
The aim of every advertising effort is to carry on the advertising message to the prospective customers economically and effectively. This crucial task rests in identifying a potential market for the product in terms of the customers’ demography, income pattern, age group, interests , etc.
If you want the message to reach people with a high-income group, a magazine may be the best. If the local area is to be covered, newspaper and outdoor advertising are of much help.
IV. The available budget
In this case, the budget refers to the estimated amount available for advertising. Let’s take for instance a manufacturer who may have a very colorful and bold plan of advertising. He may be dreaming of advertising on a national television network and films. If the budget does not allow it, then he should consider advertising in newspapers and radio. Instead of color print in a magazine, he may be forced to go in for black and white. Thus, resource constraints can be a rather important determining factor in decision making.
Common places to advertise your brand.
I. Display ads: Display advertising (banner advertising) is an advert that conveys a public message visually, using videos, text, logos, photographs, or any other graphics, examples are television, billboard, lamppost, etc.
II. Social media ads: Social media ads are digital advertising that serves paid ads to your target audience using social media like Facebook, Instagram, LinkedIn, Pinterest, etc.
III. Print ads: These advertisements appear in newspapers or magazines and are sometimes included as brochures or fliers.
IV. Outdoor advertising: This refers to advertising campaigns that employ out-of-home media such as billboards, transit vehicles, and other types of outdoor signs, including the signs on the outside of businesses.
V. Radio and podcast: A podcast ad is an audio ad that contains information about your product/service. But a radio ad involves an organization booking ad slots: the advertiser pays the radio station at predefined amounts, during which the station will broadcast the desired message to its listeners.
Before you arrive at the average advertising cost, consider this.
Technology in the world today has twisted social media, blogging, PR, communications, and branding such that media planning and buying must take all of them into consideration. It has also enabled targeted messaging to custom audiences at a deeper level than in the past.
Today, the digital revolution has enabled targeted media buying, to focus on targeting the exact customer you want to reach. It is a lot to take in, whether you’re new to media buying and planning or not.
In this media buying pattern, we cover the media planning and buying process, and how to compare media types and channels to arrive at an average advertising cost.
When planning on buying, there are certain things you should consider like:
- Identify your target audience through a comprehensive market survey.
- Understanding your audience choice or interest, then find your audience when they are most attracted to your message.
- Involve creatives that persuade and motivate your customers to take certain actions. Also, remember to test and retry your ads and creativity to check which is working and which is not. Then try to strategize and work harder, this procedure applies to all the buyers’ expedition.
How to compare media types and channels?
We can divide all media channels into three main categories: print media, broadcast media, and digital channels. Media channel refers to the specific medium by which an advertiser’s message is conveyed to its intended audience.
To ensure that you use the right media type and channel follow this step;
- Budget carefully
- Note that just spending lots of money won’t automatically bring high results.
- Understand and define your product, brand, and value proposition
- Know your audience.
- Know where your competitors are advertising.
- Set realistic goals and then measure them by comparing them with your advertising cost.
Ad bookings and negotiations have been made easy by adspace.ng where advertisers can save themselves the stress of looking for media spaces to book their desired ad space.
According to marketing edge publication, Adspace.ng is the first E-commerce platform in Nigeria that allows brand managers and owners to negotiate directly with the media owners.
Basically Adspace.ng is connecting decision-makers, brand owners, and media owners by providing them the platform to come together to decide on a price and agree on terms of running a campaign.
Sample Media Plan for an average advertising cost
Here is a sample of a media plan with respect to media type, state, landmark, and the channel for promoting it.
|POSITION||MEDIA TYPE||AVERAGE ADVERTISING COST|
|POSITION||STATE||AVERAGE ADVERTISING COST|
MEASURE WHAT WORKS
A marketing campaign factor in many of the metrics mentioned requires a plan to best determine what KPIs apply to what you are measuring. To measure the success of a marketing campaign: you need to:
- Create a goal to achieve: Give a clear and detailed description of what you need to achieve. Include metrics and target numbers that show success and ensure your goal is challenging but realistic enough to reach. Make sure the goal you set is relevant to the company’s overarching objectives and set milestones and dates to meet your goal.
- Set a time frame: Establishing a solid time frame, whether 14 days or 14 months, provides the parameters around which to measure your success and helps create a sense of urgency. Time frames allow you to make year-over-year or month-over-month comparisons to track and measure data.
- Select success factors: Give precise details. For example, “Grow target audience followers” is vague and doesn’t explain what to measure specifically. In comparison, “Grow target audience followers on all four social media channels by 50% within two months” includes more details to explain the goal in a more specific way.
- Plan out a marketing guide: consider creating a template with all of the KPIs you intend to track and measure. Include items like:
The time frame for the campaign, initial aim, expectation or reoccurring issues, what has worked and what has not then summarized all possible events.
In conclusion, advertising promotes your brand and is a communication medium used to encourage and persuade customers to make a purchase. However, advertising can be potentially profitable for businesses if only it’s done right. The profitability is determined only when the true ROI is known.
Are you having difficulties in booking ad space? do you have a fixed amount for the ad space? well at Adspace.ng we make ad space booking very easy to learn more on how to go about it you can log on to www.Adspace.ng.