Beire Guides: ROI is key to changing marketing’s perception

By using the method below, marketers can demonstrate to senior leadership the value that exhibition stands can generate and help change the perception of marketing from a spending department into a revenue generation department.

Calculations:

What Is a Payback Ratio?

There are several ways to calculate ROI, including breakeven, net present value, and internal rate of return. However, the payback ratio is arguably the simplest way to calculate the ROI. Using the four measurements mentioned above[A1] , businesses can get a rough estimate of the payback ratio, which is the value you get paid for every €1 spend on a tradeshow.

Written as a formula, the payback ratio calculation will look like this:

New Revenue Growth + Revenue Retention + Cost Savings + Value of Promotion / Total Tradeshow Budget

New Revenue Growth: 

New revenue growth is key to post-pandemic recovery. Whether it’s identifying new sales opportunities or driving upsells and cross-sells from existing clients, everyone in the business of event planning should look for different ways to drive value and greater ROI.

When marketers are estimating new revenue, they can break it down into smaller assumptions to make their forecast more understandable for CFOs.

For instance, a business sees a total of 1,000 new visitors to the stand. About 20% are qualified, but only 10% converted. If the average revenue per sale is €25.000, the total estimated new revenue from the show should be €500.000.

Here’s the formula for the total estimated new revenue:

1,000 x 20% x 10% x €25.000 = €500.000

Revenue Retention: 

Revenue retention at a tradeshow is the investment in existing client relationships to reduce “churn,” or the loss of revenue that must be replaced. Revenue retention at a tradeshow occurs along a spectrum: from a casual catch-up over coffee to a hard-fought negotiation in the VIP meeting room over the terms of prolonging a contract.

Revenue retention helps businesses understand the growth trajectory of the business. Imagine having 10 existing customers booked for meetings at the tradeshow. If they continue to purchase products, then the business saves the cost of having to replace these existing revenue streams. So, how do you calculate for the net revenue retention?

From all 10 meetings, add the base amount of revenue these clients represent. For this example, €250.000, or 10 clients x €25.000 average revenue per client. Add the potential revenue growth from these 10 clients in the form of up or cross-selling: +€75.000.

Subtract any lost revenue from customers who, despite your efforts at the show, will stop buying from you: -€25.000.

This represents revenue retention of: €250.000 + €75.000 - €25.000 = €300.000.

If it's not clear exactly what revenue will be retained, up/cross-sold, and lost during or immediately after the show, you can probability weigh these amounts based on team feedback to complete the analysis with the best available information.

Cost Savings:

Another way to increase returns on an investment is to reduce costs. If businesses can boost sales without increasing expenditures, then they can achieve better returns.

For example, a business organizes 50 sales meetings during a trade show. If the average cost of travel per sales call is €500, then they can save €25,000 by avoiding sales travel.

Some expenses are necessary and unavoidable. As long as the increase in expenditures allows room for a net gain in profits, businesses can still improve their ROI.

Say, a business gains 800 badge swipes, and about 20% of them are qualified leads that do not take a meeting. If the average cost to generate a qualified lead is €150, then the value of contacts they add to their CRM database would be €24.000.

Value of Promotion: 

Communication and promotional value encompass awareness, recall, and social postings. It is achieved through event marketing activities.

To calculate the value of promotion, marketers must measure the number of impressions received at a show by listing a variety of promotional activities for the audience. Aside from the exhibit, the list should include direct marketing, media coverage, on-site promotion, and more.

Impressions aren’t limited to the attendees that visit the booth. When an attendee watches the trade show from the aisles, even without stepping foot inside the booth, it counts as an impression.

Take note that gross impressions can include anyone, while targeted impressions should fit the target profile. Gross impressions are also less costly compared to targeted impressions.

Let’s say the example trade fair has 25,000 attendees, but 10.000 of these visitors are in a target demographic for your industry. The value they receive per targeted impression is €1 and €0.25 per gross impression. Thus, their value of the promotion is €10,000 in targeted impressions and €6,250 in gross impressions.

 Formula: 

So, there you have it, by using these four measurements exhibitors have an accurate way to gauge the revenue of tradeshow events: New revenue, Revenue retention, Cost savings, and Value promotion.

·     New revenue

Total estimated new revenue = total visitors x percentage of qualified visitors x percentage of closed sales x average revenue per sale

·    Revenue retention

Revenue retained = existing client meetings x average revenue + upsells / expansions - lost existing business

·     Cost savings

Cost savings = Number of off-site meetings/sales calls x Average cost per off-site meeting/sales calls + number of qualified leads collected x average cost to generate a qualified lead

·    Value promotion

Value promotion = Total number of impressions generated from promotional activities (direct marketing, media coverage, on-site promotion, and exhibitions) x cost per gross impression + total number of targeted impressions x cost per targeted impression.

To calculate the payback ratio, you add all four measurements and divide it by the business’ total trade show budget. For example, say a business generated €500.000 worth of new revenue and maintained €300.000 in revenue retention. It also saved €25.000 in sales costs, generated €24.000 in new leads, and received €16.250 in value promotion. This results in trade fair value received of If this business has an estimated show budget of €300.000, its payback ratio would be €2.88 of value received for each €1 invested in the tradeshow.

€2.88 = €500.000 new revenue + €300.000 revenue retention + €49.000 cost savings + €16.250 value promotion / €300,000 trade show budget (space + stand + personnel)

To calculate the return on investment (ROI), as understood from a financial perspective, we follow the following formula:

Trade fair value received (€865.250) - Trade fair budget (€300.000) / Trade fair budget (€300.000) = 188% ROI (return on investment, in the trade fair)

Conclusion:

Marketing has changed massively over the past decade with the emergence of social media and the convergence with sales. Senior marketers are much more aligned to revenue growth and the ROI of exhibition stands can play a key role in driving marketing leads and ultimately generating pipeline and revenue. Knowing how to calculate ROI correctly is something all marketing departments should be able to competently deliver and by proactively measuring the ROI of exhibitions, businesses can determine whether the company getting the most from one of their key customer-facing activities.