The Cost of Social Media Campaign and Yelp Advertising - Essay Example

 The costs that are to be incurred in the social media campaign include The cost of making the website mobile friendly= $1500. Cost of Facebook advertising= $ 20 per day = $7300Linkledln Account= $574.88Cost of advertising intern position per year= $1000The facebook advertisement is expected to increase sales by $50, 000 per year assuming that the discount rate is 1.7, these are the present values of annual cash outflow and inflows for the next five years: YearPV outflowsPV inflows1(1500+7300+574.88+1000)x 1/1.17 = 8867.450000 x 1/1.

17= 427352(7300+574.88+1000)x 1/1.172 = 6483.2250000x 1/1.172 = 684453(7300+574.88+1000)x1/1.173 =5541.2150000 x 1/1.173 =31218.54(7300+574.88+1000)x1/1.174=4736.0850000 x 1.174 = 93694.45(7300+574.88+1000)x1/1.175 = 4047.9350000 x 1.745 = 3134.9Total$ 24939.76$239227.8NPV= PV of Inflows- PV of outflowNPV= 239227.8-24939.79= $ 214288.80The cost of making a website mobile friendly is paid upfront while the other costs are incurred annually. The upfront cost is only $1500 and can be raised from the firm’s net income without any need to borrow from outside.

There are no major risks involved in this kind of investment since it does not require any external borrowing; the start-up and maintenance costs are relatively low while the returns are very high. The high rate of return is because the internet can reach a wide range of potential customers and if used by a person who is well-versed in social media marketing it is bound to bring high returns. Option 2: Yelp AdvertisingAnnual costs $12000. This is through a monthly contract of &1000 per month contract payment is made at the beginning of the month.

Expected returns annually are $30,000There is no upfront payment needed just the monthly payments. NPV= PV of Inflows- PV of outflowAssuming that the discount rate is 1.7% the following are the PV of inflows and outflows: YearPV OutflowsPV inflows112000x 1/1.17 = 10,256.430000x 1/1.17 =25641.2120000x 1/1.172 = 8766.1630000x1/1.172= 21915.43120000x 1/1.173 = 7492.4530000x1/1.173 = 18731.124120000x 1/1.174 = 6493.830000x1/1.174= 16009.55120000x 1/1.175 = 5473.3330000x1/1.175= 13683.33Total$38482.14$95980.35NPV= 95980.35 - 38482.14= 57498.21

From the calculations above, it can be seen that the use of social media has the highest net present value of $ 214288.80 compared to Yelp advertisement which has an NPV value of $ 57498.14.Although Yelp advertisement does not include any upfront costs, its monthly costs are relatively high and the returns are low.

The advantage of yelp is that it does not require a lot of monitoring as the company monitors the number of clicks made. Social media advertising on the other has a likelihood of yielding high returns and low costs. However, even though the firm would not incur a lot of cost in human resources as it would use interns from the university, the exercise would require close monitoring by the management which can also be costly. Nevertheless, in terms of costs and rate of return on investments, social media advertising is the better option and should be chosen as a channel of advertisement.