I have been in numerous meetings recently at the VRMA conventions where discussions regarding ROI have been addressed, and I believe the ideas put forth can be very useful to those that really want to be able to quantify their marketing investment returns.
So I would like to discuss what I would call the TRUE return on your marketing investments. First of all, the big question you must ask yourself, is this: “Is the marketing money I am spending giving me the appropriate return? And am I able to quantify that return?” Without the answers to these questions, you are really not able to evaluate how effective your marketing $$ are being spent. So I’d like you to look at this in a manner that you might not have looked at before.
So I’ll need to put in some numbers to my proposition, and hopefully it will be easier to understand. Let’s look at revenue vs. profits for a second. If you add up total revenue to the company, and that includes rent, fees, taxes, etc., do you know your % of profit on that amount? And do you know the company earnings before taxes? Let me give you an illustration. Note that the company share, and the margin are calculated numbers based on your ability to pull both the company revenue, and company earnings from your accounting software. And of course these numbers will vary from month to month, and year to year:
Total paid by renters: $ 3,000,000
Company share (commissions and fees): 33%
Company revenue $ 999,000
Company earnings before tax $ 149,850
So $149,850 is 15% of company revenue, and it is also 5% of total revenue. This is actually important when you consider returns on your marketing $$. When Budgeting marketing $$, it is usually considered appropriate to measure based on earnings. After all, doesn't the money you spend on marketing above and beyond your earnings? We will stipulate there are fixed and variable costs, but for this exercise, we will not address either. Our subject is discussing only the cost and return of marketing $$.
So now we need to ask this question: “How much revenue to you have to generate to make a marketing campaign profitable?”
Let’s say you have a marketing campaign that is going to cost you $1,000. What amount of revenue will you need to generate in order to make it worth your while? And let’s say you don’t want break even (who would), but you expect a 15% ROI. Then for each $1,000 you invest in the campaign, you also need to account for $150 for profit. So what amount of revenue will you have to generate if you expect a 15% profit on the campaign. Divide $1,150 by 5% ($1,150/5%=$23,000). You will have to generate $23,000 in new bookings and fees on this campaign to reach your profit goal of 15%. If your average reservation is $2,000, that will also mean that you have to have generate an additional 12 reservations from this marketing campaign!! With that additional revenue, it might be just as smart to take that money and go on a vacation.
And so it is critical that you understand how to quantify your marketing return, and that is where your property management software can become critical for your success. Software is no longer just for making reservations, or paying owners. Tools like coupons, rewards programs, source of business codes, the ability to quantify where EACH reservation comes from, become more and more important as you learn to quantify your success.
As wise person told me, “If you spend money on something, make sure you measure the expenditure, and the results”. This is the essence of this blog. Learn how to measure the return on every dollar you spend, especially on your marketing dollars. Accurately measure the expense, and the return. And then take that vacation knowing you have spent your money wisely. You can certainly measure your return on that!!
By Mike Mueller