There is probably no more important acronym in business than ROI. Every cent a business spends should not only be accounted for, but should help bring in a greater amount of revenue. Your workforce is an investment, your buildings, equipment and other capital is an investment and your marketing materials are an investment. And they should all be doing their part to help bring in more revenue to the company.
Measuring ROI helps you decide where to spend money and what to focus on in the future. When it comes to animated videos, we often hear our clients talk about them in terms of “cost.” We encourage people to think and talk about them in terms of how much of an investment they’ll need to make. Because, like stocks or property or any other type of investment, they should ultimately increase in value and make you money over time.
Calculating the ROI of an animated video is relatively simple (except for the fact that you have to math) and it involves five distinct steps …
Establish the Objective
You’re not just making this video for fun, it’s to serve a purpose and in order to calculate ROI, you need to know what that purpose is. Some videos have multiple goals to fill, but they can be prioritized from most to least important.
You should know what the objective of your video is before you engage an animation company because that’s the first question they’re going to ask you anyway. Some common objectives are:
- Increase Sales
- Boost User Registration
- Generate More Leads
- Expand Brand Awareness
Choose the Metric
This is the unit you’ll be using to gauge how good of an investment your animated video is.
Things like increasing sales and boosting registration are easy to measure because the objective itself is the measurement. Other objectives are a little less clear and not as automatic as simply counting registrants or looking at top line revenue. If you are generating new leads, you can connect your form to your CRM software or place a pixel on your site that will report to your Google Analytics.
To measure something like awareness, you can conduct surveys and monitor Google searches of your brand or any terms related to it that you’re interested in. You can also monitor activity that is related to the video on your website. For example, do people usually click to find out more about your company after watching the video?
For education, particularly if it’s in a formal setting, a quick quiz at the end can tell you if people learned what you wanted them to.
Give the Metric a Dollar Value
This is the proverbial nitty gritty. You have to decide what achieving your objective is actually worth in real, live pesos (or whatever currency you’re using).
Again, sales are the easiest to gauge because the additional profit on your gross margin for each sale is what that sale is worth. Other objectives are trickier to assign a value to. If you are after more registrations, what are you expecting from those registrations? They could, in turn, be used as a metric to help you get more funding or they could be worth more advertising dollars to you. Divide the funding or advertising dollars that you expect to receive with your new sign ups by the number of new registrants and that will give you your dollar value for each new registrant. Obviously some educated guessing is required.
For new leads, multiply your gross margin by your closing ratio and that will give you the dollar value for each new lead.
Unfortunately, there is no easy formula for figuring out a dollar value for brand awareness or education, but trying to figure out and assign dollar values to them are good exercises to try.
You can either perform A/B split testing with your video or compare a set timeframe from before you introduced your video to after you’ve introduced it.
With A/B testing, you deliver the video to two different sets of users. Make sure they are randomly assigned. Since it will take a significant amount of time to gather enough data to make a meaningful comparison, it might be better to forego A/B testing and instead compare two time periods.
To do this, choose a timeframe from before you introduced your video and compare it to that same amount of time after you introduced it. Obviously you’ll need to wait until the time has elapsed before you can conduct your comparison and you’ll need to choose a long enough timeframe to account for random fluctuations in the sample. Also, be cognizant of other things that might affect the sample such as if you started using some other marketing tool that might account for some of the data.
Finally, you’re ready to find out just how much your investment has earned for your business.
WARNING: MATH AHEAD
This relatively simple formula will give you the coveted ROI.
DVoEMU x (U in AP / U in BP) = GV
(GV – CoV) / CoV = ROI
That mess of letters can be translated into:
Dollar Value of Each Metric Unit x (Units in the After Period / Units in the Before Period) = Gained Value.
(Gained Value – Cost of Video) / Cost of Video = ROI.
Using the following lead generation formula:
Gross Margin per Sale x Closing Ratio = Lead Value
Lead Value x (Units in the After Period / Units in Prior Period) = Gained Value
(Gained Value – Cost of Video) / Cost of Video = ROI
- Kirk’s Consulting (KC) received 2,000 leads last year, of which they closed 100, giving them a closing ratio of 5%.
- KC had 100 contracts and the average value of those contracts was $20,000, so total revenue was $2,000,000.
- KC’s gross margin was 40% while their operating margin was 10%
- KC invested in an animated video for $15,000 and that video increased their leads by 20%, garnering KC an additional 400 leads (found by comparing the 12 months after the video was introduced to the 12 months before it was introduced).
- Multiply KC’s gross margin by the closing ratio and it gives you a value of $200 per lead. And if you multiply $200 by 400 leads, that gives you $80,000 in additional value for the company.
- Subtract the cost of the video ($15,000) from that $80,000 and it gives you $65,000 of additional value. Divide the additional value ($65,000) by the initial investment ($15,000) and you get a 430% return on investment for KC’s animated video in this case.
That’s a pretty good ROI.
Everything in the equation is variable depending on your specific company, obviously, but a 20% increase in leads is not at all uncommon when you employ an animated video on your site. This is why we always encourage companies we work with to think of their videos as an investment. Like any good investment, it should create value for you and ultimately make money for you.
Click here to use our price estimation calculator to see approximately how much your video will cost. (You don’t even need to talk to anyone!)