Maximizing your marketing ROI will make your marketing campaigns more effective and help your business overall. ROI, or return on investment, is a business metric that most companies use. Any good investor wants to know what kind of return they can expect for the money they dedicate to any cause. It helps govern the way money is spent and identifies the highest growth areas.
When we talk about marketing ROI, we’re talking about assigning or attributing sales and profit to specific marketing efforts. It’s a way of seeing what kind of impact a certain ad set or video campaign has. This is great for businesses that have traditionally struggled to put a dollar figure on marketing even though they know it’s something they have to do. It also helps marketers refine the work they do and demonstrate what kind of impact they have on their organizations.
Let’s explore how marketers are using marketing ROI in modern businesses.
Better Marketing Budgets
There are many parts to why marketing ROI helps businesses budget and forecast more effectively. Here are some of the reasons modern marketers use ROI in their work.
Assigning Marketing Budgets effectively – When you know how much revenue or profit certain marketing efforts create, then you can assign appropriate budgets to each. This helps avoid the problem of paying money towards what you think is working when it’s not. Instead, you’re investing in what works the best. You can give the right teams to host marketing campaigns on the right channels and platforms to build a bigger audience.
Demonstrate Marketing Impact on Revenue – The way to the boardroom is through demonstrable impact. Tracking and showing marketing ROI will help you communicate what effect your company’s marketing budget is having on growth. You can help the sales and product development teams identify new trends and what your customers need.
Benchmark in Your Industry – Marketing ROI helps you benchmark against your competitors. There is a good deal of publicly available information to help you estimate what returns your competitors are getting for their marketing work and what kind of results it’s generating. That’s valuable information for you as a marketer and your business as a whole to gain or maintain an edge.
The Challenges of Marketing ROI
It’s always difficult to assign a dollar value to your marketing. So much of marketing involves emotion, things like the impression customers have around a brand or a product. How do you value the place a company holds in someone’s mind or what a reputation is worth? If you’re only focused on the dollar for dollar results, then you risk missing the bigger picture. You may overlook how important things like brand marketing or marketing in the aftersales process is.
The point is, marketers need to parse through the data to find out where they can assign marketing ROI while still allocating budget and time to areas where ROI isn’t as easy to draw out. A comprehensive, holistic approach is the right one to get ahead.
Calculating Marketing ROI
On the most basic level, marketing ROI is calculated with the following equation:
(Attributable Sales – Cost of Marketing)/ Cost of Marketing = Marketing ROI)
This, while an effective method of putting a quantifiable measure on marketing work, is sometimes too simple for complex organizations that engage in multiple marketing channels over years. Still, if you’re currently not using any metric to measure marketing ROI, it’s the right place to start.
One of the nice things about this equation is that it can be adjusted around different parameters. It allows an organization to look at year over year returns for marketing, and it can help provide insight on specific marketing campaigns.
Typically, modern businesses aim for a ratio of 5:1 to measure marketing ROI. That’s $5 in revenue for every $1 in marketing money spent. Anything that you can do to improve those numbers will only spell more success for your company.
What Marketing ROI Does and Doesn’t Cover
Calculating your marketing ROI doesn’t cover all of the costs associated with running and managing successful campaigns. Personnel costs, for instance, aren’t typically included in that ratio, so it should be a consideration for marketing departments. Usually, marketing ROI calculations include things like:
- Video production costs
- Article writing costs
- Keyword purchasing
- Pay Per Click costs
- Any third-party agency fees
Whether your business chooses to hire an in-house team to manage marketing efforts or use resources to hire a third-party agency, it’s going to change your perspective on marketing ROI. A lot of smaller and medium-sized businesses choose to use digital marketing agencies because the costs are more easily included in marketing ROI calculations. As you grow, the costs of hiring outside help can eventually outpace how much it costs to have an internal dedicated marketing team.
The Bottom Line
Marketing ROI is a valuable tool for every organization. You want to know how your money is working as you reach your existing customers and new potential leads. It can help increase your ability to measure your performance against your past results and your peers. That’s critical in a modern business world where adjusting and refining the messages you send to your audience matter so much. Take the steps today to take inventory of your marketing campaigns and start measuring them as best you can. Once you know where you stand, you can make the needed adjustments to make every marketing dollar more competitive.