Determining ROI has felt like a mystery to marketers for a long time. The Return on Investment is the ratio between the net profit and cost of an investment – the higher it is, the better the investment’s return is compared to the cost. ROI is one of the most important marketing success measures. Although there are tracking URLs and website and App analytics to track marketing performance nowadays, marketers face challenges to look at ROI from a long-term perspective.
Companies allocate significant resources towards marketing spend. It’s often necessary to invest in top-of-the-line market research tools to generate the right insights for strategies and spend on advertising to attract more consumers and gain more profit. You need to know if the investment is worth the expense. Management needs to track the return of every penny spent or risks being inefficient and bleeding cash.
ROI can measure marketing efforts at the campaign level as well as channel level. If you track how many financial resources were dedicated to different channels such as Facebook ads and email marketing, you could see which campaigns generate more profit and inform marketers which part needs to spend more or minimize expenses.
It’s important to know if you’re spending too much on your media mix compared to your competitors and whose marketing efforts are more financially effective. Use competitive analysis tools to benchmark yourself with the industry. While it’s possible to invest in competitive analysis research, you can also use publicly available financial statements to get the info.
Marketing awards are not the most effective way to measure marketing success, but sales revenue is. ROI can measure the incremental changes in marketing effort brought by investments in different campaigns over time. You’ll be able to measure campaign success and establish baselines that can serve as a reference for future efforts.
Marketing ROI is a straightforward return-on-investment calculation.
Get the sales growth number and subtract the marketing costs, and then divide by the marketing cost.
Marketers can also calculate ROI through customer lifetime value (CLV), which sheds light on how customers value their relationship with your brand. To assess long-term ROI across the consumer’s lifecycle, use the following formula:
Marketing metrics are considered good if they are actionable and provide insights that inform decisions for future efforts. But more importantly, they need to generate an ROI you can present to the rest of the board.
The first stage is to identify individual campaign performance. Look at each campaign, whether it’s an email, social post, or event, and identify specific metrics that reflect revenue for each.
After measuring the performance of the campaign, look closely at specific channels. Identify which ones are driving net-new acquisition, which ones generate net-new website conversions, and which ones could perform better or need improvement.
To optimize channels accordingly and refocus your marketing spend with revenue-based decisions, rely on measuring metrics like the following:
From analyzing your channel and campaign performance, you now have actionable insights to identify the overall business impact of your marketing efforts.
Certain key insights help you generate a clear return from your marketing spend and support a decision-focused approach to marketing management. Look at both the short- and long-term impacts your campaigns had on:
An interior design firm wants to gain more clients. They write 10 blog posts about office plan and design. Each post includes a tracking URL that links to a landing page where prospective clients can register for a free consultation.
The company spent $2,000 paying writers to write 10 blog posts and $200 to promote it. The post generated 20 leads, 5 of which became clients. For each client, the company made an average of $3,000.
Here is the ROI calculation:
[(Leads x Conversion rate x Average Sales)- Total Cost] / Total Cost x 100
[(20 x 0.25 x $3,000) - $2,200] /$2,200 x 100
If this rate of return works for the company, they might want to continue the marketing strategy. If not, they can turn to a more effective channel.
A SaaS company is launching a new product that automates customer service chats within the after-sales process. The company has a landing page for demo signups, but they haven’t generated many leads. They attribute this to the company’s CRM managers not understanding how the software works. So they shared a promotional video on LinkedIn along with a tracking link to the demo signup landing page.
It cost the company $500 to get a freelancer to produce the video. After the LinkedIn post went live, it resulted in 10 demo signups and eventually 2 purchases of the $3,000 product.
Here’s the ROI calculation
Email Marketing Email is still a key marketing tool. Although the ROI depends on the product, the mailing list size, and the type of audience, it is still considered a prominent marketing channel.
A lifestyle magazine offers a weekly e-newsletter to customers and to those who sign up on their website. A local coffee shop pays them $100 to place an ad that links to a purchasing page for their newest coffee beans.
Because the ad is linked with a tracking URL, the coffee shop can see that it drove 50 visitors to their product page. Of those visitors, 20 placed the coffee bean in their cart, and 17 purchased it. The ROI formula for that would look like this:
[((20 x .85 x $20) - $100) ÷ $100] x 100 = $240
After seeing how much return they gained from the newsletter, the local coffee shop might continue to place ads in that weekly email and even branch out to other coffee-related emails.
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