ROI calculation of film productions
Since it is not possible to estimate the effect of films exactly, it will not be possible to calculate the “Return on Invest” precisely. We will present different approaches to calculate the ROI, but please have in mind, that, without a representative study, you will get approximate values for your decisions, only.
With our calculation formula you will always get values higher than 0. A multiplication of the production costs with the ROI value amounts to the benefits of the film production. If the ROI has a higher value than 1, the benefits are higher than the investment. The higher it is, the faster the film is profitable. If the value is below 1, the investment will not be useful in economic terms, since the costs of the production and distribution are higher than the benefits of the film.
Comparison orientated approach
Many companies calculate the ROI on basis of the comparison to media already in use and do not take the effects into consideration. Image films are often compared to leaflets and other prints. The creation of a high quality film is more expensive than the creation of similar contents in different media types. At the same time, the distribution of the contents becomes more cost efficient. An image leaflet is cheaper to produce than a film, but in the distribution the film catches up. The print of a high-quality leaflet is more expensive than the pressing of a DVD, not to mention online distribution. Also the costs of the despatch, transportation and storage are higher.
Training films are often compared to seminars. The company can easily compare the cost of the production and distribution of the film with the fees of the trainers, the rents of needed rooms and the travel costs of the participants. Of course the question remains open, which of the alternatives is the more effective.
The trade fair film can be compared to a different event, like a presented show or the display of machines at the exhibition stand.
These comparisons are easy to carry out, do not work with estimated values and make an indisputable ROI calculation.
Calculation formula ROI (easy comparison base):
(c of compared media with c of distribution)
(c of the film with c of distribution)
However, this approach does not consider the different effects of both media types, like e.g. the image change through films, the lower rate of errors reached by filmed instructions compared to printed ones, or the differences in attention on trade fairs. It´s not possible to record standardised data, since the tasks and solutions of the films and companies will be totally different. Therefore, it is necessary to have a subjective assessment of the effects. Set the effect of the reference medium to be 100 % and then guess the effect of the film in comparison (e.g. effect of a motivational film compared to incentives). Of course these values are more trend values than approximate values, but your guesses normally don’t have to be exact. If you guess 5 % or 15 % will only influence the decision if the value is near 1. If the value is clearly lower than 1it´s not important if its 0,6 or 0,4 or 0,25. On the other hand, the film will be the better solution, regardless of the values being 4, 6 or 8.
Calculation formula (ROI extended comparison base):
(c of compared media with c of distribution) x 100 %
(c of film with c of distribution) x (% effect of film)
Benefit orientated approach:
The benefit orientated approach calculates the benefits of the film production for your company. Again, it requires extensive guessing, which influences the result.
One general rule applies to basically every film production: The greater the target group, the more people watching your film, the more profitable is the production. You know this effect from the cinema: The more visitors a film has the higher is the economic success. Now imagine a training film for your employees. Regardless of how many persons you train with it, the production costs fixed (e.g. € 25.000). If you have 5000 employees it costs € 5 per person, but € 1000 if you have only 25 employees. The same applies for an image film. If you show it to 100.000 customers at trade fairs worldwide you pay only 25 ct per contact. Think about how often you want to use the film and calculate the costs per use.
It will be more difficult to estimate the benefit of a film. Imagine you have a very important presentation with the head of the purchasing department of a global corporation. Given, you improve your chances by employing a film, you only have to guess very roughly which percent of the success you have to attribute to the film. It becomes easier if you use the film more regularly. For example your sales representatives use a film at some 2000 presentations p.a. for approximately 3 years. The average turnover for each presentation is € 5.000. The aggregated turnover will be 30 million Euros. Here again your calculation will require approximate values. Given that conversion rates increase by 2 % by employing the film, your turnover will rise by € 600.000. If you compare the contribution margin (for example 10 %) to the costs of the film you have a good base to decide if the production of the film will be profitable or not. The contribution margin in this example is € 60.000, the film costs € 20.000. Here the calculation the result for ROI is 3. For every invested Euro you get € 3 in return.
Calculation formula ROI (benefit orientated base):
(Count of uses) x (average turnover per use)
x (contribution margin in %)/100 x (higher chances in %) /100
(c of film with c of distribution)
As you have seen no method can calculate the ROI objectively and “controlling-safe”, because criteria like the effect do not influence the calculation, have to be guessed or be measured by complex methods. The decision to make a film – like many other managerial decisions, will eventually be based on gut feelings. Once the decision is made, it will be easy to find the appropriate formula to calculate its benefits.
However, the medium film has such a high potential, that in most cases a positive decision will not depend on estimated values.