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Capital budget for a marketing investment, NPV | Free template

Capital budget for a marketing investment is a free template to create an investment calculation for an investment in marketing, such as a marketing campaign, advertising or other marketing activities.

An investment in marketing is just like any other type of investment. How the return on a marketing investment will look like depends on how the products in your business are sold. If your business sells subscriptions an investment in marketing will give profit in several periods ahead, while the return is made directly if your company sells products with no ongoing subscription agreements. If your business sells subscriptions, there is a risk to underestimate the return that an investment in marketing will give.

This template uses the present value method to calculate the net present value of an investment in marketing. Input for the investment calculation is the initial fee, the current subscription fee, operating margin excluding marketing costs, the number of customers that the campaign is estimated to give and the average subscription time for customers who choose to accept your offer.

Marketing efforts such as investing in advertising gives usually a short-term effect on the number of new customers, but can provide a long-term effect if customers stay long and are loyal to the company. In addition to assessing whether the marketing investment is profitable or not you can use this investment calculation to determine what is needed on the number of new customers or average subscription time to make the investment profitable. In order to get the profitability of the investment, you can adjust your prices or negotiate down the cost of the investment. It will be easier to negotiate with a supplier of marketing if they are shown on quantifiable data.

This template for calculation of profitability on a marketing investment assumes real cash flows before tax. When estimating future cash inflows and cash outflows you should not make any compensation for inflation, nor shall any deduction for tax be made. When cash flows are real and the cost of capital rate used is adjusted for both inflation and taxes the cost of capital measure is a real cost of capital rate before tax.

The cost of capital rate is calculated as a weighted average of the return from shareholders and the average interest rate from lenders, WACC. The weighing of the capital from shareholders and lenders is made on the basis of how the investment will be financed.

You can use this template to create an investment calculation for an investment in a marketing campaign, in advertising or other marketing activity.
Updated: 01/01/2015 | Created by

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