What is Marketing ROI?
This elusive metric can be complex to capture and measure. According to a recent Hubspot analysis, it is a tool that marketers can use to maximize their investments and connect with customers. According to Meltwater, it’s the profitability of your marketing efforts.
The reality sits between the two. Your marketing ROI is a metric by which you can tangibly measure the financial value of your campaigns against customer engagement, strategic objectives, yield, market growth, and sales.
ROI is important to measure because it provides clarity into your marketing strategy and its effectiveness and allows you to refine individual campaigns to better align with onging strategic objectives. Using ROI, you can unpack how well a campaign performs in which channels and how well customers across multiple touchpoints and channels engage with each campaign and brand. It also allows you to understand the profitability of your campaigns against these channels and to refine resource allocation, strategy, and spend.
How do you measure and improve your marketing ROI?
Calculating your ROI depends on the business, the market, and your expectations, but a solid strategy is to divide net profit or loss by the total marketing spend and then multiply by 100 to get a percentage result.
You can also subtract your sales growth from your marketing costs to assess your marketing ROI or subtract organic sales growth from overall sales growth, as expressed in this well-known formula
(Sales Growth – Marketing Cost) / Marketing Cost = Marketing ROI
In some cases, sales growth is not directly linked to marketing spending, and the following formula eliminates organic sales growth from the equation.
(Sales Growth – Organic Sales Growth – Marketing Cost) / Marketing Cost = Marketing ROI
However, a formula is only one part of the ROI equation. You also need to measure your marketing ROI against goals and objectives that reflect how your organization perceives success. One way of doing this is to use the SMART framework that asks you to assess marketing spend and return on that spend against the metrics of: Specific, Measurable, Achievable, Relevant, and Time-Bound. These steps cover everything from increasing ROI on social spend, to putting measurable criteria in place, to budget constraints and a clear timeline for achieving your goals.
Then, ensure that all the insights you gain are used to drive future strategies built on the foundations of trusted data and visible metrics.
The challenges of measuring marketing ROI
The problem with most marketing ROI metrics and measurements is that they rarely take in the whole picture and often result in shaky results that don’t reflect the value marketing has gained or the impact it has had. Most marketing metrics are too simple and ignore the multiple external factors that impact a campaign, such as seasons, trends, and events; plus, they often focus on short-term results and don’t fully align success against the entire duration of a campaign.
Another challenge is that the marketing landscape is omnichannel, so customers hurtle through multiple touchpoints before they purchase. This means that often their route to sales is hard to track and difficult to quantify.
What is good marketing ROI?
If you want an exceptional ROI metric, then you are looking at 10:1, but the average is around 5:1, with anything less than 2:1 falling well below par. This ratio is established using the formula outlined above and assessing the results against overall marketing costs such as overheads, margins, marketing spend, omnichannel investment, brand development, and more.
Why use this ratio? Because it is a very immediate and visible way of assessing marketing activity and using the insights to tweak campaigns and spend appropriately.
Why pay attention to marketing ROI? Because here lies a wealth of information and data that you can use to transform your marketing spend and its success rates. Information can help you optimize your channels and refine your approaches, which can help you constantly tweak and shape your campaigns to achieve sustainable success.
In Part 02 of this series we dig deeper into marketing ROI and the different methodologies, approaches, and strategies you can use to make your marketing spend work for you.
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