Which methodology should you use to calculate sponsorship ROI?

Which methodology should you use to calculate sponsorship ROI?

Should we renew this agreement for another four years? Which of our partnerships is generating the greatest return? Where should we allocate our remaining budget? Reliable and valid sponsorship ROI calculation is the golden goose of successful campaign management.

Many agencies offer measurement and sponsorship ROI calculations as part of their service. However, with such a vested interest in the outcome, can any agency truly mark its own homework effectively?

In this article, we review the two leading approaches to holistic sponsorship ROI measurement offered by brand research experts Nielsen Sports and Brand Finance, to assess which to use for your campaign.

Nielsen Sports

The Nielsen approach focuses on three key areas: reach, brand equity and behaviour change. The methodology considers multiple data points in each area to arrive at a concise and comparable ROI.

The first step is to collate all and any monetary returns associated with the partnership. The measures here broadly centre around hard sales data, where applicable, and various forms of media equivalency. To gain a complete picture of associated media value Nielsen asses the multiple touchpoints of the campaign, including TV, social media, marketing, OTT and in stadia.

Next, Nielsen evaluates the strategic performance of the campaign through a weighted scorecard of measures. By conducting market research across key brand equity metrics like awareness, image, and consideration, we can understand how well the campaign has reached and resonated with the target market.

The final step in Nielsen’s ROI methodology is to apply the strategic performance weighted scorecard to the monetary returns. The resulting figure is divided by the rights fee and activation cost to arrive at the final score. If the resulting score is more than 1, your partnership delivered a greater return than your investment and vice versa.

The verdict...

The Nielsen process effectively considers a wide range of campaign touchpoints incorporating both the hard and soft measures determining sponsorship success.

Finance-minded colleagues, of course, pay greater attention to the monetary return aspect. Unfortunately, as hard measures of financial performance go, media value equivalency is relatively weak due to the complex and subjective nature of its calculation. However, the methodology does consider hard direct return financial figures where they exist.

This approach's real strength is its consistency, with which it can be applied across many different sponsorships regardless of size and scope. As a result, Nielsen’s ROI calculation is an effective solution for brands managing a portfolio of partners.

Brand Finance

The Brand Finance methodology is more complex but comes with greater financial rigour. It involves placing a monetary value on a company’s brand and measuring changes to that brand’s value resulting from sponsorship activity.

The Brand Finance process involves a weighted scorecard of measures assessing, amongst other things, awareness, consideration, and preference. The results of this brand scorecard are applied to an industry-specific royalty rate range to determine a specific royalty rate for your brand. For example, if the industry royalty rate range is 0 – 10% and your brand achieves a 75 out of 100 brand strength score, then the royalty rate for your brand will be 7.5%.

The next stage involves applying your brand-specific royalty rate to your company revenue. Brand Finance refers to the total value of attributable branded revenues as your company's brand value.

Essentially the methodology is calculating how hard your brand works to generate revenue for the organisation. Your sponsorship should increase the individual brand strength measures resulting in an uplift in your specific royalty rate, translating into more significant attributable income and an increased brand value.

The verdict...

The strength of the Brand Finance method is its grounding in commercial reality. The process is a good indicator of a sponsorship campaign’s impact on the business’s overall value.

However, such a macro view of a partnership can make it hard to measure small incremental changes brought about by sponsorship. As a result, the approach is not as effective at measuring smaller campaigns. This is especially true when evaluating smaller campaigns implemented by larger organisations where the measures can be impacted by external factors unrelated to the sponsorship.

The real benefit of the Brand Finance methodology is that it carries far greater weight in the boardroom. As a result, it is an effective tool when measuring global campaigns and justifying significant sponsorship investments.

The above approaches are two of the most recognised and publicly available to assess. This will not only measure sponsorship impact on brand and business value but also help in avoiding cognitive bias in sponsorship marketing. If you have an alternate ROI calculation that you would like to share with our members, please let us know by emailing info@thesponsor.com.