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)

 \[ROI = \frac{K_{Vergleichsmedium~inkl.~Distributions-K}}{K_{Film~inkl.~Distributions-K}} \]

(c of the film with c of dis­tri­b­u­tion)

(c=costs)

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 %

 \[ROI = \frac{K_{Vergleichsmedium~inkl.~Distributions-K}\cdot100\%}{K_{Film~inkl.~Distributions-K}} \]

(c of film with c of dis­tri­b­u­tion) x (% effect of film)

(c=costs)

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

ROI= \[ROI = \frac{n_E\cdot Durchschn.~Umsatz~pro~Einsatz~in~\cdotin \% :100 \cdot erhoehte~Chancen~in~\%:100}{K_{Film~inkl.~Distributions-K}} \]

(c of film with c of dis­tri­b­u­tion)

(c=costs)

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.

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