There are several factors that go into calculating the return on any investment. Before you whip out your fancy-dancy calculators, we need to take a few of these factors into consideration.
Factor Sample Data
- Total Cost of the Sign 20K
- Response rate from current forms of advertising 1%-2%
- Customers that responded who actually make a purchase 10%
- Average Sale Amount (annual sales/number of sales) $535.00
- Annual advertising budget (ie: direct mail 1M pieces) $60K
- Annual traffic count (SE Michigan go to SEMCOG.org) 2,500,000
Based on the traffic counts, this sample company could spend $20K on signage and anticipate sales of $1,337,500. That’s only $1.50 for every $100 sold. Here’s our calculation using the sample data above::
Traffic Count x Response rate x Customer purchase rate x Average Sale Amount = SALES
2,500,000 x 1% x 10% x $535 = $1,337,500
If we apply our sample data to a retailer who uses direct mail types of advertising we could conclude that the sample company spends $60K on direct mail to generate $1,070K in sales or $5.60 per $100 sold. Ie:
Ad Impressions x Response rate x Customer purchase rate x Average Sale Amount = SALES
1,000,000 x 2% x 10% x $535 = $1,070,000
In conclusion, wouldn’t it make sense to re-allocate some of those direct mail dollars and invest in signage? Essentially, the signage would pay for itself. Should this Sample Company choose to continue to spend $5.60 per $100 in sales on direct mail marketing? Could advertising dollars be shifted from direct mail to additional signage at a cost of $1.50 per $100 in sales?
Contact Signarama today and get answers to these tough questions.