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The Importance of ROI

As arts organizations, we fight for our budgets every day. That’s why understanding how and when to figure out the return on investment of our efforts is so important.  ROI can clarify what is worth spending our limited hours and funds on to make the greatest impact.

What is ROI?

ROI, or Return on Investment, is a performance measurement.  It measures how efficient an investment is.  Though commonly seen in marketing, ROI can be used in all departments at your organization.

Calculating ROI

ROI is calculated in these three steps:

  1. Take the amount of revenue you’ve gained from the investment.
  2. Subtract the amount you’ve spent.
  3. With this number, divide by the amount that you’ve spent.

(Revenue – Expense)/ Expense = ROI

For example, if your organization sent out an annual campaign letter that cost $3k to distribute and ultimately earned you $5k from those patrons, then the ROI on that effort would be $1 earned for every .66 spent or 166%.

How to use ROI

ROI can be used strategically in many ways.  ROI can help you track those trials and errors of new strategies and tweaks to schemes. Validating costs and hours spent, ROI can also prove success and failure to board members and senior staff, or as benchmarks to go back to and compare campaigns year over year.  Essentially, ROI is used to track your own efficiency and can be utilized to find the most efficient route possible.

Ways to use ROI in your arts organization

  • Direct mail campaigns
    Identify a list of patrons you sent a direct mail campaign to. Then compare this against the amount of money you’ve spent to create and distribute this mailer as well as the value the campaign has yielded your organization either in ticket sales or donations. With this data in hand, have some campaigns been more successful than others? Dissect the elements of those campaigns to try and replicate it for future ones. It might be that you learn that you only advertise events that are a certain number of weeks away, email campaigns are more successful in driving donations when there are quotes from your artists, or that brochures with fewer pages yield the same profit but cost less to create. Use that information to continually optimize your efforts until the average ROI of like campaigns increases.
  • Web re-design
    Using your ticketing system’s reports, compare the proportion and value of sales you had online before and after your website redesign. Or maybe you’re practicing iterative design and slowly upgrading portions of your website in piecemeal. If that’s the case consider using A/B testing tools like Optimizely to see which version of your web design will drive the highest conversion rates.
  • Google Analytics and Tag Manager
    Go the extra mile and use Google Analytics and Tag Manager to see how long patrons are staying on your site and their path through your website before purchase. Are there portions where visitors are getting hung up or are bouncing? If so, consider taking a look at those pages and identifying why that might be the case.
  • Loyalty programs.
    Track how much extra time and money are being put into your loyalty strategies, whether that be subscriptions, memberships or donor programs.  Is the number of new loyal members greater this year than the last? If not, then it might be time to trim your offerings and consolidate your efforts into the most impactful loyalty mechanisms.
  • Hiring extra box office staff.
    Does having an extra associate in the box office make a difference? See if staffing your box office with an extra person results in more profit-- time to upsell, cross-sell, or ask for a donation. Or maybe additional staff will decrease average hold times on your phones. Start to measure these stats before making a change and then test if modifying staff levels impact them in relation to your labor expenses.

Parts of ROI that may be difficult

To determine ROI, you need to evaluate the cost of your investment or project. This may include tracking hours and giving a monetary value to them.  Then you want to track the return-- the amount you’ve earned.  What you are ‘earning’ may not be in dollars but to keep a cohesive number, you may need to determine a value for a positive response to your outreach, such successfully signing up a patron to your email newsletter or increasing the number of shares of your social media content.  

Putting it all Together

ROI validates.  You can use it to know where you stand and continue to use it to make sure your resources are being used as efficiently as possible.  Make tracking ROI part of the start of every project and write down how you plan to do it.

Use reporting tools in your ticketing system to validate new and old efforts. In doing so, you will be able to make data-driven decisions on the best ways to spend your time and budget.