Did You Know ?

How do you treat subscription revenue when calculating marketing ROI?

Marketing ROI is calculated by determining the incremental revenue generated for a given investment in marketing. With subscription based services revenue, e.g., from a newly issued cell-phone contract to a new customer, revenue is not just the revenue generated in the first month. It is the incremental revenue generated over the life of the customer, also known as the customer lifetime value (CLV).

Let's start by first determining the expected customer lifetime of a new customer. If a new customer on average remains a customer for 24 months then the life of the customer is 24 months. Now, in this simple case, the revenue side of the marketing ROI equation can be caluculated based on the number of months (e.g. 24) times the monthly service price (let's say $69.00) for a total of $1,656.00.

In this simple example, other costs and revenue have not been included. These can include retention costs, (i.e., marketing expenditures required to retain a set of customers), other incremental revenue and costs, such as, upselling revenue and costs associated with that customer relationship.

Lastly, especially for financial institutions, the net present value of the incremental cash flow can be calculated to compare with other corporate investment options.

If you'd like to learn more about this and other methods in calculating marketing ROI for your organization, then join us at our next workshop.

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To learn more, feel free to contact us at 404.816.4344 or if you have other questions you can email Susan.Howard @ MarketingROIWorkshop.com.