Think of the most memorable TV commercials you’ve ever seen: Tootsie Pop’s “How Many Licks”, State Farm’s infamous spokesperson, Jake from State Farm, Snickers’ “You’re not you when you’re hungry.” These ads were memorable, creative, compelling, funny – and they inspired people to buy. But it’s not enough to just make people laugh. Successful TV ads need to have a high return on investment (ROI).
For instance, Budweiser’s “Wassup?!” commercial became a national phenomenon, with many people quoting the silly catch phrase in their daily lives. Thanks to this clever, quotable commercial, Budweiser’s sales grew significantly.
How to calculate ROI
The ROI of a TV ad can be incredibly high, generating awareness, excitement, and sales. To calculate the ROI of your TV ad, take the average lifetime value of a new customer, and multiply it by the total number of new customers acquired after the ad aired. This number will be the ROI. In a successful campaign, this number will outweigh the total spend on the commercial, including production costs and the price of the ad spot.
In TV advertising, companies typically look for a high ROI that dramatically boost sales following a campaign. Suppose you spend $1,000 on producing and placing a TV ad campaign that runs for a month. If you see a sales increase of $5,000 as a result of the ad, the value ($5,000) minus the initial cost ($1,000) has a gross sales margin of $4,000. To calculate ROI, divide the $4,000 gross sales margin by the $1,000 ad campaign, which results in an impressive ROI of 400%. In other words, for each dollar spent on the ad campaign, the company earned $4.
$5000 (sales increase) – $1000 (ad spend) = $4000 (gross sales margin)
$4000 (gross sales margin) / $1000 (investment/ad spend) = 400%
TV ads boost KPIs
While there’s increased competition with other platforms, such as social media, TV still generates better results than advertising through other mediums. For instance, TV ads result in higher key performance indicators (KPIs) than digital ads. A good ROI on TV ads is around 300-500%.
Keep in mind that some TV ads promote a brand and not specific products or services. In these cases, the ROI should be measured on other factors (such as increased name recognition or improved brand reputation) rather than increased sales or revenue.
How to boost the ROI of your TV ads
If you’re interested in developing ROI-positive TV ads, here are some tips:
- Be creative and clear. Develop an original, creative ad with a clearly defined call-to-action (e.g., call, click, follow, buy).
- Determine whether your ad meets people’s emotional needs. Are you showing key audiences how your products/services can cure their pain and make their lives easier? Are you connecting with them emotionally and making them feel good about buying from you?
- Identify your goals. Usually, companies want to increase sales, but sometimes ad campaigns are used to boost brand recognition, improve a company’s reputation, or increase traffic to their website. If increased sales is your goal, get an accurate baseline of your sales history. Then, once your campaign launches, monitor sales numbers to track increases and use that information to calculate the ad’s ROI.
- Use other strategies to track your ad’s effectiveness. While measuring ROI is an important way to measure how well an ad is working, it’s not the only way. Some ads feature “loss leader” products that are purposely underpriced to drive customers to a store or website. Companies may opt to advertise a special product that’s only available for a limited time. If sales of that particular product increase, it proves that the ad is working.
- Try using “word flags” in your ads (distinct words or phrases like “Wassup!” in the Budweiser commercial). If your customers are repeating these words when they communicate with your employees (or interact with your brand on social media), it shows the ad’s effectiveness.
- Work with an agency to develop an ROI-positive campaign. Your ads should spotlight your brand, drive sales, and result in a positive ROI. The right agency will partner with you to identify your goals, value proposition, differentiators, etc. so they can make an ad that showcases your brand attributes, resonates with key audiences, and drives specific behaviors.
Television ads are a great way to tell a story, connect with priority populations, and inspire action, but calculating your spend in this way will let you know if your ads are working. And, they’ll allow you to gain insight from comparing one campaign to another. Contact us to deploy your TV ads and maximize your campaign’s success.
