November 22, 2006

Return On Investment Equation, and Copywriting

Updated 12/06/2006: Visit this link for a more thorough investigation of ROI formulas used in multichannel marketing. Enjoy the comments below regarding measuring the ROI of blogging!

The good folks at Blog Business Summit share an interesting formula for measuring the return on investment of writing activities. Since blogging can be viewed as the art of copywriting applied to the technology of the 21st century, we catalog/online retailers finally have a way to quantify the financial impact of writing great copy.

For instance, assume that somebody Google's the following term: Michael Smith President And CEO. The top result is not the business this individual runs. The number one site, according to Google, is my blog. This fledgling business should have some sort of blog, so that searchers are directed to the appropriate content. Google is driving traffic to my site each week, traffic that should be going elsewhere. There are many examples of terms that drive traffic to my site, traffic that should be going to your business. Here are two additional examples.
Of course, blogging costs money. Is it worth doing? An adaptation of an ROI formula is listed below:

Blogging ROI = (ADBT * CR * AOS * PF) / (HSB * S) where:
  • ADBT = Average Daily Blog Traffic
  • CR = Percentage of Blog Visitors Purchasing Merchandise
  • AOS = Average Order Size
  • PF = Profit Factor, the Percentage of AOS that is converted to profit.
  • HSB = Hours Spent Blogging, Each Day
  • S = Average Hourly Salary + Bonus + Benefits
Here is an example.
  • Your business blog gets 200 visitors per day.
  • Three percent of your blog's visitors decide to purchase merchandise.
  • The average order size of a blog visitor's purchase is $150.
  • Twenty percent of each purchase is converted to profit. The profit factor = 20%.
  • The person you hired to blog spends three hours per day writing content.
  • This person earns $80,000 per year including bonus and benefits, or, about $40 per hour.
  • Blogging ROI = (200 * 0.03 * $150 * 0.20) / (3 * $40).
  • Blogging ROI = ($180) / ($120) = 1.5.
Any time the formula returns a number greater than 1.0, you will be making money with your business blog. In this case, for every $120 spent blogging, $180 of profit are generated, yielding a positive response. In this example, $60 * $365 = $21,900 of annual profit are realized.

Technology finally allows businesses to truly direct traffic to a site via copywriting. It has become important to write content that is search-friendly. The ROI formula, illustrated above, demonstrates that it isn't hard to justify the effort.

5 comments:

  1. Anonymous12:15 PM

    Speaking of measuring media effectiveness, Umbria claims that they are able to determine the demographic makeup of bloggers, and track how marketing campaigns affect online buzz about a brand/product using natural language processing and machine learning techniques. What do you think about data mining in blogosphere? Are the technologies there to allow companies take full advantage of the new media?

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  2. You can give Umbria two points for using innovative techniques. I surmise they use text mining to filter through spam.

    This article from CNN, in 2004, outlines how they do some of what they do. After reading the article you'll notice that they don't really don't know specific demographics for specific users. They use their algorithms, combined with the law of large numbers, to make an estimate. And when you estimate something like "18% of your readers are age 55-64", you can come reasonably close.

    http://www.cnn.com/ELECTION/2004/special/inthefield/blog/faq.html

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  3. It seems like an interesting formula but those seem more results oriented. Interesting theory but I dont know how would work in the real world because you wouldnt really need a formula to figure this out at most levels.

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  4. Thanks for the feedback, Tom, I apprecaite it!

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  5. This formula is really helpful for me. I still have to study them well. I also wanted to be effective in terms of marketing my business. Thanks for sharing!

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