How to measure promotional products and business gifts ROI ?
How does one measure the profitability of promotional gifts?
Last update: 03.08.2018
You have probably wondered whether promotional products really provide you with any benefit and how to measure it. I have been in the business of promotional merchandise for 15 years and I have answered time and time again: the investment definitely pays off. I sincerely believe this, but unfortunately there has been no concrete way to measure and confirm my belief. Now there is.
Everyone who deals with marketing is aware that the profitability of each cent spent on marketing is carefully measured, and as a result, marketing channels where measuring this profitability isn’t possible, are less attractive.
In order to keep up with the times and answer customer questions with numbers, I looked at the latest US, European and Australian surveys on promotional gifts and advertising gifts, commissioned by international organisations representing many promotional companies. Based on this data, I was able to compile a formula which will help you measure the profitability of your investment in promotional gifts and business gifts.
100,000 people participated in the ASI US study, and among other things, it turns out that a promotional gift is used for 8 months on average. The precise numbers of months of use for each product type are as follows:
· umbrellas with logos 14
· power banks 12
· promotional bags 7
· hats 7
· office supplies 7
· T-shirts 6
An important fact is that 57% of people who receive advertising gifts, will regift them once they have had enough of them.
The number of times a product is noticed is called the number of contacts, and this is another very important factor that is measured for promotional products. In Europe, promotional clothing and advertising bags with logos receive the most contacts or impressions, whereas in the US, promotional bags with logos are the most popular, followed by caps and hats. Promotional pens are in the top three in both the US and in Europe, and we shall now take a closer look at the numbers related to these.
In the US, one pen is noticed 2,805 times, in London 3,449 times, in Paris 1,204 times and in Berlin 5,615 times.
Let us assume that an average advertising pen costs 1 USD, i.e., 100 cents. Thus the cost of receiving one contact is 100 : 2,805 = 0.036 cents, and receiving 1,000 contacts costs 36 cents, i.e., 0.36 USD. This means that making visual contact in the US 1,000 times via a pen with a logo costs 0.36 USD. Impressive!
CPM stands for the cost needed for acquiring 1,000 contacts – I will use this from now on so that the information will be clearer and more concrete.
The study states that the average CPM of promotional gifts in the US is 7 USD, while it is 32 USD for a newspaper ad, 24 USD for a magazine ad, 10 USD for an online ad, and 7 USD for a radio ad.
All in all, the CPM of an average promotional product is about the same as when advertising online or on the radio, but according to the study, promotional gifts are the most preferred advertising tool. The second choice is newspaper ads, third is radio ads and fourth is magazine ads. There are 2.5 times more people who wish to receive a business gift rather than see an online ad. When asked to name a brand, 85% of people first think of a company that has given them a T-shirt or a hat.
More information on the study is available at the Logotrade blog of business gifts.
It seems that promotional gifts do indeed have a lot of advantages compared to regular advertising. But still, how does one measure it? Now I will present you with a long formula, which is certainly as interesting to many people as it was to me, but if you believe me and do not wish to delve into it, you can scroll past this. There are many other interesting things below!
Let us first calculate CPI and CPM in cents, so that the results are more precise and the rounding more accurate.
CPI – the cost of 1 showing in cents, i.e., the cost of a contact, i.e., the cost per impression
CPM – the cost of 1,000 showings in cents, i.e., the cost per 1,000 impression
C – the cost of a product in cents, i.e., one product cost in cents
PL – the lifespan of a product, i.e., product life time
AI – the average number of total contacts during the lifespan of the product, i.e., average total impressions over product life time
I – the number of contacts per day (or per week/month/year), i.e., Impressions in one day (or per week/month/year)
AI = PL x I
CPI = C : AI
C = 1 USD or 100 cents
CPI = C/AI = 100 : 2,805 = 0.036 cents
CPM = 1,000 CPI = 0.036 cents x 1,000 = 36 cents
1 USD = 100 cents or CPM = 0,.36 USD
Example: we spend 500 USD for 1,000 pens. Thus CPI = 50,000 : 1,000 x 2,805 = 0.0178 cents and CPM (0.0178 cents x 1,000) is 0.178 USD. Let me remind you that CPM indicates cost per 1,000 contacts.
TC x 100 – total cost in cents
Q – quantity
TC – total cost in dollars
TC = C x Q x 100 (cost in cents)
CPM = [TC : (AI x Q)] x 1,000
CPM = [500 x 100 : (2,805 x 1,000)] x 1,000 = ( 0.0178 cents) x 1,000 =17.8 cents or 0.178 USD
The quantity must be taken into account in the total cost, as this influences the product’s CPM and mistakes may easily occur when leaving quantity out of the formula!
Let us try to calculate the CPM of a T-shirt in Berlin, where, according to the study, the average number of contacts (AI) for a T-shirt is 1,763.
Example: let us buy 150 shirts for 400 EUR.
CPM = [400 x 100 : (1,763 x 150)] x 1,000 = (0.15066 cents) x 1,000 =150.66 cents or 1.50 EUR
For a simple T-shirt with a logo to be seen 1,000 times, you only have to pay 1.5 EUR.
I made similar calculations with the numbers for a power bank, a pen (now in Europe), a shopping bag and other promotional clothing. Those that would like to see these calculations in detail can do so on the Logotrade blog of promotional gifts. I encourage you to do the same – you can calculate the profitability of your products in the same way.
Altogether, the cost of 1,000 contacts per gift is as follows:
· power bank 9.15 EUR
· pen 0.15 EUR (it was 0.36 USD in the US; this depends on the price per pen, which was 1 USD)
· shopping bag 0.49 EUR
· sweatshirt with a logo 5.75 EUR
CPM depends greatly on the promotional product itself, its visibility, lifespan and cost. According to the ASI study, the products mentioned have the most number of contacts, which every marketer can consider when choosing and ordering products.
The formula for a promotional gift, advertising gift, business gift and company gift CPM is CPM = [TC : (AI x Q)] x 1,000 (euro cents).
AI, i.e., the average number of contacts per product can be calculated even more thoroughly.
Let us assume you are a product manager and you have to choose between ordering work clothing with a logo for the employees or doing a retargeting campaign online. The CPM of the latter is 0.9 EUR.
When calculating the CPM of work clothing, we take into account that one employee should have two sets of work clothes and that he/she works 21 days per month. Let us assume that every day 10 people are at work and in total the company has 15 employees. We do not take into account the chance that an average person regifts 57% promotional gifts, since this does not apply to work clothes. The store is open every day (meaning 30 days per month) and during this period it is visited by 1,000 people. We learnt from the previous study that on average, work clothing is used for 9 months. The budget is 300 EUR, we order 2 sets for each employee, meaning 30 sets in total. Product price per piece is 10 EUR.
Number of contacts: 1,000 : 30 = 33.3333 contacts per day.
Contacts per employee: 33.333 x 21 = 700 contacts per employee per month
Contacts between employees: 10 people per day = 10 x 30 days = 300 contacts per month
Total contacts per one month: 1,000
AI = 1,000 contacts x 9 months = 9,000 contacts
AI x Q : 2 = 9,000 x 15 (divided by 2, since every employee received a spare set of clothing)
TC = 300 x 100
CPM = (300 x 100 : 9,000 x 15) x 1,000 = 0.222 cents x 1,000 = 222.22 cents or 2.22 EUR
The CPM of work clothing (if every employee has two sets) is 2.22 EUR.
If we only calculate one set per employee, its CPM is 1.11 EUR. If under the same conditions the work clothing were a 5 EUR T-shirt with a logo, the CPM of two products per employee would be 1.11 EUR and the CPM of one product per employee would be 0.555 EUR.
The product manager can now choose, but according to calculations, the 1,000 contacts of a T-shirt as work clothing cost less than the 1,000 contacts of a retargeting campaign.
Hopefully I have proven to you that it is possible to measure the profitability of promotional gifts. However, the result is dependent on the combined effect of many factors, such as the uniqueness, practicality, price, amount and visibility of the promotional gift as well as the people who use the gifts. Some active users make many times more contacts than passive ones. So choose carefully what you give as a gift and to whom.
Recently, hybrid solutions such as sharing promotional gifts on social media have become popular and their CPM is even more profitable than a regular promotional gift. I promise to write about this in more depth, to help you make smart decisions when giving promotional gifts.