FUTURE MAP 2025-2045: Discover the Crucial Trends Consumer Brands Must Act on to Prosper in this Massively Transformation Era. See that here.
This was a Quora question I was asked to answer.
I’ve not personally thought of or used ROI for channel sales, but I suppose you could.
To be clear, when I think of channel sales in context of what I do, which is consumer products, I think of the retail channel, or a subset of retail might be the grocery channel, or the mass channel.
I think of ROI as a fixed investment with a return marked by a defined period of time. So if you purchase an asset and later sell it, you would calculate your ROI.
Selling into channels is not something you get in and out of. You set it up, which are defined by costs, which are an investment, then you operate, which are your operating costs.
When looking at the investment costs, I am more interested in payback period…the costs associated with setting up the channel compared against the profits and how long that takes to earn back the initial investment. These are investment costs that get paid back from profits and are separate from operating costs.
When accounting for operating costs, the metric I am most interested in is net profit margin for operating in that channel. Take all direct and indirect costs against revenue to determine the profitability of that channel.
This metric is most useful because you can compare against channels. It is not ROI in the classic sense as I defined above. but operates in the same way in that you can see your return for a given time period and can compare it across different channels.
I have a simple spreadsheet explaining this here.