Marketing ROI Calculator for manufacturers

"Half my advertising spend is wasted; the trouble is, I don’t know which half.” - U.S. retail magnate John Wanamaker

Let's look at an example

Calculating the Return on Investment (ROI) using the Customer Lifetime Value (CLV) method. This approach is especially useful when you want to understand the long-term return of your marketing efforts based on the value customers bring over their entire relationship with your business.

Let's consider a manufacturing company that produces high-quality office furniture and recently invested in a targeted digital marketing campaign to attract new business clients. We'll calculate the ROI of this campaign using the Customer Lifetime Value (CLV) method, focusing on the long-term value of the customers it acquires.

Step 1: Calculate the Customer Lifetime Value (CLV)

  • Average Order Value: $5,000
  • Average Number of Orders per Year per Customer: 2
  • Average Customer Lifespan: 5 years
  • Gross Margin per Order: 60%

First, calculate the gross revenue per customer over their lifespan:

Gross Revenue = Average Order Value × Average Number of Orders per Year × Average Customer Lifespan
Gross Revenue Example = $5,000×2×5=$50,000

Next, apply the gross margin to determine the CLV:

CLV = Gross Revenue × Gross Margin
CLV Example = $50,000×0.6=$30,000

Step 2: Calculate Total CLV of Acquired Customers

Number of New Customers Acquired Through Campaign: 50

Total CLV=CLV per Customer×Number of New Business Clients
Total CLV Example=$30,000×50=$1,500,000

Step 3: Determine the Cost of Marketing Efforts

Total Campaign Cost: $200,000

Step 4: Calculate the ROI Using CLV

ROI = ((Total CLV - Total Campaign Cost) / Total Campaign Cost) x 100
ROI Example = (($1,500,000 - $200,000) / $200,000) x 100
ROI Example = ($1,300,000 / $200,000) x 100
ROI Example = (6.5 / $200,000) x 100 = 650%

The ROI calculation using the CLV method shows that for every dollar spent on the targeted digital marketing campaign, the manufacturing company generated $6.5 in value over the lifetime of the customers acquired, resulting in a 650% ROI. This impressive ROI highlights the campaign's effectiveness in not only attracting new business clients but also in contributing significant long-term value to the company.

This example underscores the importance of considering the long-term value of marketing investments, particularly in industries like manufacturing where relationships and repeat business are key to growth. Calculating ROI using CLV allows companies to better understand the full impact of their marketing efforts beyond immediate sales, guiding more informed strategic decisions.