How to Calculate ROI for an Endcap

So you're trying to determine if getting an end-cap display for your product was worthwhile? Or perhaps you're curious to see what would have to happen to justify signing up for an end cap?

Well, this blog is the right place for you! Today, we'll go over one method of calculating Return On Investment (ROI) for your endcap investment.

Note: There are many ways brands determine success for a promotion. We're focusing on the dollars and cents approach, but there are goals like lift and awareness that will not be measured here.

Step 1: Acquiring the Direct Costs

Almost every retailer charges a fee to set up an end cap display—paid either as a lump sum or a percentage of sales. We'll start by getting this value.

Next, we generally have a discount on the product to incentivize greater purchases in the space. Because we're not selling the product at the regular price, we need to factor in this discount as well.

Variables:

• lump_sum (the retailer's fee)
• discount (the product discount percentage)
• original_price (the product's regular price)

Step 2: Estimating Sales Impact

To predict sales, we use historical numbers. If you have access to NielsenIQ or Circana, you can input exact sales figures.

A more data-driven approach involves using BrickBI, which provides:

• Impressions Analytics: How many shoppers see your end-cap.
• Interactions Data: How many consumers grab your product
• Conversion Rates: How many consumers become buyers.

Variables:

• old_sales (sales before the end-cap promotion)
• new_sales (sales during the promotion)

Step 3: The ROI Formula

To determine if your end-cap display is financially justified, we'll use a comprehensive ROI formula that accounts for all costs and revenue changes.

Component Breakdown

Each component of the formula can be calculated as follows:

1. New Sales Revenue (during promotion):

   $$\text{New Sales Revenue}=\text{new\_sales}\times \text{original\_price}\times (1-\text{discount})$$

2. Old Sales Revenue (baseline):

   $$\text{Old Sales Revenue}=\text{old\_sales}\times \text{original\_price}$$

3. Total Cost (investment):

   $$\text{Total Cost}=\text{lump\_sum}+(\text{new\_sales}\times \text{original\_price}\times \text{discount})$$

Practical Example

Let's work through a real-world example using these values:

Step-by-Step Calculation

1. Calculate New Sales Revenue:

   $$\begin{array}{rl}\text{New Sales Revenue}& =300\times \$15\times (1-0.10)\\ & =\$4,050\end{array}$$

2. Calculate Old Sales Revenue:

   $$\begin{array}{rl}\text{Old Sales Revenue}& =150\times \$15\\ & =\$2,250\end{array}$$

3. Calculate Total Cost:

   $$\begin{array}{rl}\text{Total Cost}& =\$1,000+(300\times \$15\times 0.10)\\ & =\$1,000+\$450\\ & =\$1,450\end{array}$$

4. Calculate Incremental Revenue:

   $$\begin{array}{rl}\text{Incremental Revenue}& =\$4,050-\$2,250\\ & =\$1,800\end{array}$$

5. Calculate Net Return:

   $$\begin{array}{rl}\text{Net Return}& =\$1,800-\$1,450\\ & =\$350\end{array}$$

6. Final ROI Calculation:

   $$\begin{array}{rl}\text{ROI}& =\left(\frac{\$350}{\$1,450}\right)\times 100\%\\ & \approx 24.1\%\end{array}$$

This 24.1% ROI indicates that the end-cap display investment was profitable, generating a positive return on the initial investment and promotional costs.

Interpretation

A 24.1% ROI means the end-cap generated profit beyond its costs. If ROI were negative, you’d need to rethink your strategy.

How to Boost Sales and Get Better Estimates

Guessing new_sales can lead to costly errors. BrickBI eliminates guesswork by providing:

• The Whole Sales Funnel: See the entire customer journey
• Conversion Rates: Measure how many viewers become buyers
• Better Serve Customers: With better data, you can quickly adapt to changes in the store, boosting sales like never before