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ROI Calculation of Website Videos

In this blog article and podcast, we are going to discuss the ROI that can be gained from website videos and use several hypothetical examples to explore the topic. The article will go through how to measure success, ROI calculation, what your video should have, why videos are important, examples of bankable videos, and lastly a conclusion about different video types.

Executive Summary

- Sales are the measure of website video success, not views

- Marketing ROI = (Additional Profit From Marketing - Cost of Marketing)/Cost Of Marketing

- Videos produce higher quality leads than most marketing methods

- The best video may not be the flashiest video

- Often lower cost or self-made videos can have a higher return on investment high costs videos made by a professional film studio

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Sales are the Measure of Success, Not Views

When publishing new media content it can be tempting to play off of that media's benchmarking metrics instead of internal goals that your business has for its content. On YouTube, it can be tempting to think of views, comments or likes/dislikes as the measure of success. When publishing a video for your company it can be important to detach the number of views and likes a video gets with the amount of success that the video has. An effective video is one that bring in additional sales, not necessarily one that has a high viewership (although high viewership is certainly not a bad thing as more views usually leads to more sales, and if not then at least more awareness).

ROI Calculation Formula

ROI is the amount of money you receive back for every dollar you put into a project. An ROI of 50% means that you receive $1.50 for every $1.00 you spend, or 50 cents in profit for every dollar spent. ROI can be calculated as:

Marketing ROI = (Additional Profit From Marketing - Cost of Marketing)/Cost Of Marketing

Additional Profit From Marketing = Revenue from Marketing - Variable Costs of that Marketing

Variable Costs of that Marketing = Revenue x Contribution Margin or Revenue - Variable Costs

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Why Videos Are Important

Videos are one of many different forms of content that can be used to try to generate leads for a business. In the graphic below (Source) videos are shown to be the highest quality lead source in generating "Very high" or "somewhat high" quality leads. The data comes from a survey of 200 B2B marketing professionals on which marketing methods they found to be most effective.

Videos were the most common type of content (utilized by 92% of the marketers) and videos produced the highest number of "Very High" quality leads at 23%.

Example 1: Low-Budget Video

A low-budget video for your website can be made relatively quickly with equipment that your staff already owns. All that is required is a staff member with some basic video editing knowledge (very easy to lookup online and learn the basics in under an hour) and a decent video camera. Nearly all smartphones come with decent video cameras today, and assuming that the video is shot in a well-lit area, that quality will be more than acceptable for an internet video.

If a business is taking the low-budget route and utilizing their own staff and equipment, a 5-minute video can be made in around 5-10 hours of work combined across all of the staff involved. Assuming the staff members time is worth $50/hour that makes the video cost the business $250-$500. The main strength of a video done by the business themselves is that a lot of information can be packed into the video that could be considered new information in the online video world.

Take a metal finishing company, for example, they may offer several different finishing services which can be compared to one another. Upon looking up those services on YouTube, they may discover that there are no videos that adequately describe the differences between the processes. The metal finishing company can then go around their shop and film the various equipment in motion while a staff member who is familiar with all of the machines discusses the key similarities and differences between them. If this video presents new information that is beneficial to people searching to metal finishing processes, the video will likely gain some viewership, and as a result, some sales.

If we continue with the example from a metal finishing company, a single sale can be worth $1,000 to upwards of $100,000 if it is a large enough job. A single sale in this example will have extremely high ROI and make the $500 cost well worth it.

If we assume that $10,000 in sales were brought from the video, and that the company has contribution margins of 40%, that gives an ROI of: [(10,000 x 40%)-500]/500 = 700% (Every $1 spent returned $7).

Example 2: High-Budget Video

A high-budget video will have to be contracted out to a video/media company that has a full range of professional equipment and has experienced video editors utilizing the most advanced software. A video from these sort of production companies can range from $10,000-$100,000 depending on the length and complexity of the video requested. The company will likely need to spend several days filming the video and than further weeks or months editing the footage.

It should be obvious just from the price tag that a high-budget video is not going to feasible for many businesses and industries. Projected sales from the video should well exceed the cost in order for a business to consider ordering a high-budget video to be made. A video of this magnitude will also require advanced oversight from the business' sales and marketing managers in order to ensure that the video is targetting the right demographic and product segment. A business such as a store chain, which can land huge jobs or reap the benefit of large volumes of sales, may want to look into a high-budget video. A business such as a local construction company will likely not want to invest in a high-budget video since profit margins are typically much smaller in the construction industry.

If we assume the same metal finishing company utilized the high-budget video (at a cost of $20,000), and was able to successfully land quadruple the amount of work or $40,000 in sales the ROI would be as follows: [(40,000 x 40%)-20,000]/20,000 = -20% (Every 1$ spent reduced profit by $0.20).

Comparing the Two Examples

Both of the examples presented are hypothetical scenario results, so before creating a video we suggest you create sales projections to see what options appear to have the best ROI. Typically, ROI should be targetted at around 100% for most marketing methods. SEO has an average ROI of 275%, which is one of the highest ROI marketing methods and almost always falls within the top 3 forms of marketing. In the case of the low-budget video scenario, it was able to be made at almost zero cost to the business. If the video generated 0 sales it would not be a serious financial hardship for the business, and therefore, it is a very low-risk approach. In the case of the high-budget video, a video of that size is a massive cost outlay for any small-medium sized business, and its failure could spell disaster for that business' fiscal year.

A series of low-budget videos, that can be focused on a wide range of products and services will offer high ROI (due to the much lower cost) and will be a much safer strategy for many small-medium sized businesses.

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