Use the Payback Ratio to Report and Compare the Value of Your Events
A great tool for conveying the value of your marketing events is the payback ratio. This is the ratio of the total value of estimated revenue, cost savings and promotion value gained through event activity, divided by the event cost. It is expressed as $ Total Value/$ Event Cost, for example $.42/1. The payback ratio serves not only as an indicator of event efficiency, but also as a useful way to compare past, current and future events.
The payback ratio is based upon estimates of the four main categories of value derived from marketing events:
1. Revenue (or gross profit margin) from the Sales Opportunities Afforded by the Event – This element of event value is cited most often, yet difficult to document. Often, many people are involved in many steps required to close a sale. And, the sales cycle may span years. It is possible to estimate probable revenue impact using internal assumptions, such as a “close ratio” associated with well-qualified event leads and an “average value of sale” for sales from those leads. The best approach is to discuss these assumptions with your sales team and get their agreement. It is also best to have the sales team define the “next step” expected of people who become leads through interactions at an event. Use “closed loop” systems such as sales automation, warranties, registrations and other types of tracking aids where available.
2. Retention and Growth of Current Revenue Base - Customer Relationship Management (CRM) is critical for virtually all organizations. Existing customers and their revenue are the usually the most profitable. I have companies criticized for devoting event marketing resources to interaction with existing customers, yet I would suggest this is one of the most valuable elements of a profitable event. Keeping customers up to date, reassuring them that their needs will be met, and thanking them for their business has a direct and measurable impact on retention and profitability.
Just as most companies have a recognized cost of sale, there may be a recognized cost of CRM. A significant percentage of that cost/ value may be accomplished through event activity. For example, a company might spend 5 or 10% of account revenue on customer service/ retention activity. For example, your company might estimate the value of an executive customer dinner held during an industry event,at 1% of your overall CRM effort for those customers for the year. The value estimate would be $.001/ dollar of existing revenue among customers seen at the event. This may not sound like much until you consider that these revenue numbers can be in the hundreds of millions dollars for a large company. For smaller companies, the impact of such an event is likely to be a much higher percentage of the overall CRM effort. Sometimes these event based “customer events” are the major CRM activity for the year, so a range of 20% or more may be reasonable.
Accomplishment of CRM goals is valuable for companies large and small and contributes to event value. Discuss how your company might determine a value of CRM activity accomplished at marketing events. Don’t forget to take credit for the cost savings made possible by using the event as a time and place opportunity.
3. Cost Savings/ Avoidance- Substantial cost savings and expense avoidance may be achieved through trade show activity. Events present “one on many” and "many on many” opportunities. This element of value is the most tangible and traceable source of ROI on an event. Large numbers of people in your "market universe" may be gathered in one place, thinking about the same concentrated range of topics. Prospects, customers, suppliers, allies, analysts, press, executives, sales, product management and marketing are all at a single event, usually at their own expense. The number and types of potential interactions are huge. Your event plan should have specific tactics to maximize the time, place and focus opportunity made possible by the event.
Be sure your activities at your next event are aimed not only at the income side of the profit equation, but the cost side as well. To make these benefits happen requires dialogue with those managers who can take advantage of the opportunity your event provides. They may also help you estimate the value of doing multiple things at an event instead of doing them one at a time in the future at additional expense.
Reporting these results in your event measurement report will add credibility and financial justification for your investment beyond the primary goal of increasing sales.
4. Promotion Value – This is often the least reported source of ROI, but promotion value at a marketing event provides real, identifiable value. Promotion value may be calculated using “ad equivalency” values, which are derived from what an equivalent advertising cost to accomplish a similar promotional impact would be.
It is less popular today to use “Ad Equivalency” values, although I believe it is undeniable that exposure through an event has at least the same value as that derived from paid advertising. However, it is still useful to report promotion value in terms of total impressions made at marketing events and to make comparisons with the exposure of your company versus that of your competitors. “Gross Impressions” are those that fall on the eyes and ears of anyone. “Targeted Impressions” are those that fall on the eyes and ears of those who fit your target profile. The total impressions are the sum of all gross and targeted impressions made as a result of show budgeted activity. These actives often include promotion activities in direct marketing, media, show exposure and exhibit exposure.
Discuss how you might value the exposure generated for your company with those responsible for corporate communications, advertising and PR.
Once you have identified and estimated values for some or all of the four elements of value, add them up and divide them by your event cost. The result is a useful index of event profitability or return on investment.
Using the payback ratio as an index is a great way to convey the value of your marketing events. The payback ratio provides qualitative and quantitative analysis of events and often times helps to more easily facilitate a discussion with executives. Remember to use the payback ratio as a simple measure of success for your event marketing program.