The simple way to calculate your media trade ROI

Barter-calculator-full-imageThe benefits of media trading are substantial. You can sell off a slow-moving product, eliminate an obsolete piece of equipment or sell off a dark retail location and rid yourself of a big headache. But once the inventory, equipment or real estate is out of your possession, it’s time to turn to the transaction’s financial benefits.

First, some media trade 101:

The financial benefit of a media trade arises from your placement of media through the trading company. Your inventory, equipment or real estate – priced well higher than its fair market value – is used to pay for a portion of the cost of the advertising placed by the trading company.

So, for example, if the trading company paid you $1MM in the form of an advertising credit for an excess inventory worth only $300,000, you will be expecting a $700,000 benefit from the deal. Unlike the immediate gain of a $1MM cash payment, however, the benefit of the advertising credit payment arises through your placement of advertising through the trading company. You will gain that benefit through paying for say, $5MM in advertising with $4MM in cash and using the inventory valued at $1MM to pay the balance (the advertising credit).

So, how do you calculate the transaction’s ROI?

In the above example, your original investment was the cash value of the asset you traded to the trading company – or $300,000. You traded that $300,000 asset for a $1MM advertising credit. At the conclusion of the transaction after having placed the full $5MM of media, your asset paid for a full $1MM of that expense ($4MM in cash paid for the rest). Without the trade, you would have paid $5MM for that portion of your advertising.

So, the full gain is $1MM and the investment is the $300,000 value of the inventory which results in a 186% return on investment, or about a 49% annual rate of return.

Actually a pretty simple calculation, but how many investments can you think of that can produce that high a rate of return?

About Mike Lake

Mike is the Senior Vice President of Marketing for Evergreen Trading. When not playing jazz trombone he is probably obsessing about writing content that will capture the attention and interest of business people and fellow learning junkies everywhere.

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