The Real ROI

So your company just paid $1 million to become a sponsor of Team X for the calendar year.  At the end of the year, you tally up the value of all the exposure you got from being a sponsor.  The guaranteed television advertising, the press releases and news coverage, the radio spots, the website impressions, the signage viewers, etc.  At the end of all your adding, you find out that you got $3 million worth of exposure for your $1 million sponsorship.  Wow, that’s a 3 to 1 return on your investment, otherwise known as ROI. 

Well, actually it isn’t.  What you just calculated is the media value of your sponsorship.  All this is telling you is that you got a great value on your purchase.  You essentially saved 67% off the regular price – not bad at all. This value is easily confused with and mislabeled as ROI.  The question is, how can you determine what your ROI actually is?

Without going into all the details, your ROI is your actual bottom-line, dollar return divided by your costs.  So lets say that you can accurately determine that, because of your $1 million sponsorship, your sales increased by $5 million, compared to the previous year when you were not a sponsor.  Does that mean your ROI is actually 5 to 1?  No, but we’re getting closer.  Your sales increased by $5 million – a substantial increase.  But your profit margin is only 50%.  The results is that your ACTUAL return on your investment is $2.5 million – an ROI of 2.5 to 1.

So what does all of this mean?  Here are the key takeaways:

  1. Do not be fooled by measurement labeled as ROI that are not ROI.  ROI comes down to bottom-line impact on profits (not sales, profits!)
  2. Calculating ROI can be difficult.  You need to put systems in place that will accurately measure what profits can be directly attributed to a sponsorship.  This is a challenge, but its not impossible.
  3. With corporate budgets tightening every day, companies need to really focus on metrics like ROI.  If your team or agency can help get to those numbers and demonstrate a real return on a company’s investment, you will keep them as a partner and a client.

2 thoughts on “The Real ROI

  • September 23, 2008 at 11:49 pm

    Different sponsors have different views of ROI itself. This is as much the case in sponsorship as it is in advertising. In advertising for example, ROI is often measured in terms of impressions, changes to brand performance indicators from consumer research and sales. The idea of actual profit based reporting ROI is rarely achieved and most ad agencies would not be using that as the measure of success.

    Personally, I think the sports marketing business shouldn’t try and achieve what the advertising business never achieved. We should define ROI is not a single figure of profit but instead it should be a serious of performance measures. This is what the advertising business does and it is more achievable.

  • September 24, 2008 at 1:26 am

    I understand what you are saying, but I have a couple of clarifications/comments. The number of impressions, impact on brand, etc are also very valuable measures. The two main categories of these types are ROO (Return on Objective) and Market/Media Value. These are not actually ROI – ROI is always bottom-line return on investment. You should definitely set objectives (they may be unrelated to profits) and measure your ROO, but this is distinctly different that ROI.

    I also think that it can be a good idea to try and calculate ROI. What better method to ultimately indicate a sponsorship’s impact on yor business that its actual return. Is it difficult to measure this accurately? Absolutely, but I wouldn’t say its impossible. If you can measure your media value, ROO and ROI, then you’ve thoroughly evaluated the total impact of your sponsorship.

    Thank you for your comment! I hope we can get more discussions going on the site!

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