How to Measure Return on Investment for Television Advertising

One reason the return metric ROI (return on investment) is so popular is because of its simplicity. The formula for ROI, regardless of the industry, is always the amount you profit (or expect to profit) from an investment over the initial cost of the investment. For television advertising, this means figuring out how much you profited from a television ad campaign. The two things you need to determine are the income made from the investment and the cost per order of the investment.

Instructions

1. Add up all costs associated with advertising. These costs can include development, retainer fees, cost of media, equipment, air time, actors, telemarketing, shipping and handling, testimonials, etc.

2. Review the CPO (Cost Per Order) model. This model looks at the direct profits that are associated with each product sold and the television media costs per order.

3. Subtract the expenses from the revenue of each item sold. This is your gross profit for that product. Let's say you have a product that sells for $150 and costs $50. Your gross profit is $100.

4. Determine media cost per order. Let's say you purchase media time for $10,000 and receive 1000 orders. The media cost per order is $10.

5. Subtract the media cost from the profit made. In this example the answer is $90 ($100 - $10).

6. Divide the profit by the cost. In our example this is $90 / $10 or 9. Multiply this by 100 for the ROI. The ROI on this is 900 percent.

References

• DirectResponseAcademy: How to Measure the Results and Profitability of Direct Response Television Advertising
• Chiefmarketer: The ROI of Television Advertising