Today’s post is courtesy of guest blogger AJ Maestas, President of Navigate Marketing.
Knowing the ROI of Your Sponsorships is more important Than Ever Before…
In these tough economic times, all marketing budgets are under scrutiny. Advertising and sponsorship in particular are two categories that are oftentimes the first to be eliminated. Instead of using a broad axe to cut the budget, there are options available to make more strategic marketing budget decisions. Knowing how much of a return on investment (ROI) sponsorships are yielding can provide a better indication of which investments warrant a cutback and which are yielding significant gains – and thus are ones that a corporation cannot afford to discontinue. Understanding the ROI of each sponsorship investment in a portfolio allows for a proper comparison of performance among all assets and an easier renewal decision making process.
Steps to make measurement easier
For the most part, each business or industry generates revenue in a unique manner, so each ROI equation must be adjusted to properly capture the idiosyncrasies of each business model. For example, a wireless carrier may look to minimize churn and increase loyalty through a sponsorship while an energy drink might look to increase frequency of purchase. These marketing decisions should be supported with evidence to provide a benchmark for analysis. Furthermore, oftentimes ROI numbers appear inflated due to possible lifts in profit from factors outside of the specific sponsorship. Because of these factors, it is recommended that conservative and consistent calculations be used throughout the ROI measurement process.
The following are steps a company should consider when creating or commissioning the measurement of ROI for a sponsorship investment:
- Establish the bottom-line objective for a sponsorship (i.e. increase in sales, buying frequency, buying volume, B2B sales conversions, unique website visits, etc.)
- Create a mechanism that can measure the success of these objectives (i.e. sponsorship specific coupons and/or codes for redemption, quick questionnaires at stores that ask if the sale and/or visit to the store were due to the sponsorship, affinity cards, uniquely tracking sales conversions by hospitality attendees, etc.). For example, AMP Energy Drink tracked increases in sales due to their Dale Earnhardt Jr. sponsorship by creating special edition cans that featured the race car driver.
- Periodically track the immediate effects of the sponsorship through market research and internal data collection (i.e. increases in market share, sales, willingness to act/recommend, coupon redemption, etc.).
- Determine the bottom-line profit directly attributed to the sponsorship and calculate the ROI. Remember that it only counts if it’s incremental; don’t credit a promotion with normal sales activity.
Other Industry Methods
Other commonly used industry methods for measuring sponsorship ROI include a sales forecast and calculating the lifetime value of a customer. A sales forecast estimates future sales based on marketing metrics known or believed to lead a consumer down the sales funnel. Lifetime customer value acts as a multiplier to account for future sales and attrition when a new customer is converted.
As mentioned above, it is easy for ROI to be overstated if the algorithm used does not account for the numerous subtle details that can affect the final number. At every decision crossroad, Navigate takes the more conservative route and uses strict filters to ensure that an ROI number isn’t overstated. Because of the numerous methodologies that exist, Navigate encourages brands and properties to consider a wide range of ROI indicators, in addition to the final ROI number, to assess a sponsorship’s performance. While ROI is the ultimate investment metric, great sponsorships still require the skill of art and science.
You can learn more about Navigate Marketing and the services they offer at www.NavigateMarketing.com.