Explainer Videos: What Exactly Is The ROI?
Putting an explainer video on your landing page is a great way to give customers a deeper understanding of your product in a short and entertaining format. In addition to being informative, explainer videos are also an extension of your brand and, when deployed effectively, a strong driver of sales.
Plus, kids like them. (Although my one-year-old also likes playing with dead bugs, so maybe not the strongest endorsement.)
But what exactly is the ROI on an explainer video and is it really worth the investment?
In order to answer this question, we are going to create a common use case and dig in to how having an explainer video on a landing page affects conversion rates, and ultimately, ROI.
Before we begin, let’s be clear that our ROI calculations will be based solely on this single use of an explainer video on a landing page. We aren’t taking into account how explainers can be used in outbound marketing, social media, video sharing platforms, SEO, and brand building. That will all be considered gravy in this scenario. (A very rich, creamy gravy that is hard to quantify, but just as satisfying and delicious as the main dish.)
So, let’s start a company.
We’re going to start a software company. (I know, so hipster techie of us, but I promise we don’t have to go around wearing Allbirds and saying “hella”.) Our product will be a SAAS offering that has a monthly subscription rate of $10. With an annual churn rate of the industry average 5%, we are assigning a Lifetime Value (LTV) of $200 to each new customer. This means that every time we convert a visitor to a qualified lead, and then that lead to a customer, we make on average $200. Not bad for an imaginary company. Maybe we can afford a ping pong table soon.
Now let’s make an explainer video.
A quality sixty-second explainer costs around $6000 to produce. This includes the discovery process, script writing, storyboards, voiceover talent and recording, illustration, animation, music, and sound mix. So, all in, our total investment in this scenario is $6000.
Once our video is complete, and perfectly explains how our product is going to change the world, we are going to put it on our primary landing page with the goal of convincing visitors to enter their information and become a qualified lead.
According to a study by Unbounce, the average landing page converts at 6.5% without video. Once you add a video though, it rockets to 11% for embedded videos and 13% for a lightbox. For our case study, we’re going to be on the conservative side and just use 10%.
That means that 10% of the people that watch our new shiny explainer video will convert into a qualified lead.
Based on Marketing Sherpa’s conversion rates by industry, as an SAAS offering we should expect a 7% conversion of those leads into customers. We’re again going to be conservative and go with 5%.
So for every 1000 views we should get 100 qualified leads (10% landing page conversion with video). Then those 100 leads should convert to new customers at 5%, giving us 5 new customers per 1000 views, or 1 new customer per 200 views.
With a customer LTV of $200 we can calculate that 1 view equals $1. So in order to pay for our explainer video, we only need 6000 views. Every view after that would be worth $1.
If you take into account less conservative churn and conversion rates along with the value that explainer videos bring to your brand in other ways, it’s not hard to see why companies of all kinds are using explainer videos to create deeper understanding of their products, build their brand, and drive sales.
Toby Schwartz is the founder and lead creative at Real Normal, an Austin, TX based video boutique specializing in explainer videos, motion graphics, and creative video production since 2002.
