How to Calculate & Improve Your Marketing ROI

Google Analytics displaying marketing ROI

In today’s clatter of digital marketing, you need to find a way to stand out from all the noise. Like many companies, you may be producing a lot of content, posting on social media, and publishing email newsletters. Unfortunately, it takes a lot of effort to be heard, and it may be costing you a lot of money, too. Understanding your marketing ROI (return on investment) is an excellent first step in determining the effectiveness of your current marketing campaign.

As discussed by Patrick Hogan of Tenfold in his article, “The Extreme Importance of Understanding Customer Acquisition Cost,” the technology that allows for personalized marketing has also made marketers more aware than ever that it’s easy for a customer to gain a lot of information and get far in their buying decision without a marketer having direct contact with them.

Related: What’s Missing From Your Marketing Plan?

Why You Can’t Ignore Marketing ROI

Your marketing ROI is one of the most crucial KPIs to measure. Unfortunately, free marketing strategies don’t exist, and you need to know if your generated revenue is enough to justify different marketing activities.

Here’s why it’s so important:

Prove Your Profitability

While it’s not the perfect KPI or the only way to measure success, it is one of the essential ways to measure marketing success.

The first reason is that measuring your marketing ROI establishes whether or not your campaigns are profitable. For example, if your strategy achieves 100% ROI and generates $100,000 from a $50,000 investment, that’s great! However, if you see fewer returns than you spent on the campaign, something isn’t going right.

Find Your Growth Potential

The second reason we love measuring marketing ROI is to help calculate growth potential. Looking at our previous example of generating 100% ROI, in theory, you could double your revenue (and profit) if you double your marketing investment.

Of course, it’s not always that simple. However, marketing ROI provides you with a strong indication of your campaign’s growth potential. It also allows you to pinpoint which strategies are worth further investment.

Protect Your Budget

Marketing ROI can also help you measure your successes and failures to accurately pinpoint which marketing strategies are underperforming and which ones are getting the most returns. In addition, moving away from negative ROI campaigns can save your marketing budget.

However, a poor ROI doesn’t always mean you need to abandon that strategy altogether. On the contrary, once you find where your efforts are underperforming, you can optimize them to (hopefully) increase your overall strategy’s ROI.

And it works both ways. You can learn from high-performing campaigns as much as you can from underperforming ones and apply improvements to increase their success further.

Attribute Success & Failure

Above all else, your marketing ROI shows you were to attribute success and failure to your different marketing efforts. You can use ROI to demonstrate success, test new strategies, identify failures, and learn vital lessons along the way. Marketing ROI provides an accountable measure of success.

Now, we’re not saying that ROI is a perfect measurement (or the only one you need); all marketing metrics have some pros and cons.

Man calcaMan calculating online marketing results by hand with laptop, phone, and paperulates online marketing by hand with laptop, phone, and paper
Man calculating online marketing results by hand with a laptop, phone, and paper

The Advantages of Marketing ROI

Here’s why prioritizing marketing ROI might be an excellent idea for your organization:

It’s Easy to Understand

A significant strength of marketing ROI as a KPI is that it’s easy to understand—at least from a reporting perspective. With a campaign generating 100% ROI, you know that that strategy adds value and makes a profit for your business.

Similarly, a campaign generating less than 50% ROI will likely hurt your marketing budget. Measuring marketing ROI lets you see which campaigns are performing well, which ones need improving, and which ones you need to drop.

The easy-to-understand nature is valuable for showing the effectiveness of your campaigns to people outside of the marketing team, too. For example, when sending reports to execs who want to see that your campaigns are profitable, ROI is likely what they’ll look at first.

Impression shares, retention rates, customer lifetime value, etc., are less likely to impress a non-marketer than simply showing them a campaign’s ROI. It’s a no-nonsense, fast measurement that demonstrates the effectiveness of your efforts.

You Get Quick Comparisons

The easy-to-understand nature we mentioned is also excellent for markets, especially when you need a quick, simple way to understand and compare the effectiveness of different campaigns and strategies.

For example, suppose you want to increase revenue for the next quarter, year, etc., without investing any additional capital. In that case, you can optimize the lowest ROI strategies to help improve performance, increase overall ROI, and generate additional revenue without spending more.

Or, if you aim to increase revenue and you can spend more, you can compare the ROI of different strategies to see what the best way to improve performance and achieve higher revenue is by increasing investments in the right places.

You can achieve either of these by measuring and monitoring the marketing ROI of your campaigns. It’s easy to compare performance by using a single metric to help you prioritize where your marketing budget and efforts are best spent.

It’s Divisible & Universal

Another significant strength of marketing ROI as performance measurement is that you can apply it to all of your strategies and calculate it easily for every campaign. By using ROI to measure your marketing efforts’ performance, you can evaluate every individual strategy, platform, and campaign.

Some KPIs and metrics are only worth using for specific campaigns, but ROI is divisible and universal across all of your marketing activities.

Marketing ROI Disadvantages

The most significant issue with marketing ROI is its difficulty to calculate accurately; there are many variables involved. Marketing ROI can be an elusive metric.

Attribution is a massive challenge in measuring marketing ROI. How can you prove the value of individual ads, campaigns, and strategies? You can only calculate an accurate marketing ROI by attributing different touchpoints to the sales they make happen.

Is Marketing ROI Overrated?

No, but it’s often misunderstood or misused by marketers. It‘s not designed for every aspect of digital marketing, and it’s unrealistic to think that a single metric can accurately measure every one of your campaigns’ performance.

It’s beneficial for gauging your efforts’ efficiency, but you need to understand the limitations of marketing ROI. You also might not have the resources and tools to calculate the metric with 100% accuracy, especially for campaigns that don’t necessarily generate revenue as their end goal. So don’t take marketing ROI as an absolute figure for efficiency and profitability; it’s more like a rough guide. However, you can increase the usefulness and accuracy of your marketing ROI by calculating it using greater detail and adding every data point possible.

Other marketing metrics to keep an eye on include:

  • Profit & profit margin
  • Operating expenses
  • Market share
  • Growth rate
  • Cost per acquisition
  • Customer lifetime value
  • Customer retention
  • Churn rate

What Does Your Marketing ROI Look Like?

Are you looking to have decision-makers think of your company first when it’s time to invest? Make sure to produce effective content that adds value and demonstrates how to solve their business problems. You also need to find channels for your content that put it into your target audiences’ path at the right time and the right place.

All of these marketing efforts require meaningful investments of money and human resources. It is very important that you have a clear picture of whether your current marketing strategy is cost-effective and producing the results you expect. The number one question for most marketers is, “are my efforts resulting in a gain of new business, and are these customers sticking with my brand for the long haul?”

To make your marketing strategy more effective, you first need an accurate measure of it. That’s why you need to measure your marketing ROI, which gives you an idea of what you are spending to bring in a single customer.

Related: Growing Your Company Through Customer Experience

Calculating a Comprehensive Marketing ROI

The basic calculation. You can get a broad view of your marketing ROI by simply dividing all marketing costs by the number of customers you brought in with those efforts. The problem with this approach is that it assumes that all customer acquisitions are equal and that marketing costs are limited to items like your list purchase, automated email service provider subscription, and graphic design. This calculation will not weigh the difference between a customer that will make a purchase every six months and one that will have a weekly standing order, nor does it consider the new social media director you just hired to manage your sprawling social media marketing efforts.

Taking more into account. You can create a more comprehensive calculation of your marketing ROI by including more areas of spending. You can add in that social media director and your specialized marketing software. In a B2B marketing strategy, you can include the following in your calculation:

  • Marketing costs (all digital and traditional marketing costs)
  • Marketing team salaries
  • Professional consultants
  • Software
  • Overhead costs

Customer value. Even when adding in a more comprehensive marketing cost calculation, there’s still more information that can refine your understanding of marketing ROI, and that’s customer value. There’s a big difference in marketing ROI between a one-time customer and one that buys from you regularly over a 10-year period, or a client whose lifetime value is $10,000 and another whose lifetime value is $100,000.

To get a clearer picture of customer value, start with a simple calculation: multiply the annual profits you receive per customer by the average number of years your company has served the customers. Take this total and subtract the initial customer acquisition costs.

Get a clear picture of your marketing ROI—Access our Marketing ROI Calculator and you’ll be better-informed for refining your marketing strategy. After you’ve calculated your marketing ROI, let’s talk about your strategy and how you can gain new customers with a better ROI.

Marketing team brainstorms lead generation funnel on white board
Marketing team brainstorms lead generation funnel on whiteboard

Improving Your Marketing ROI

Now that you have a better idea of what it’s costing you to acquire a new customer, you can begin to refine your marketing strategy to reduce costs and bring in more new desirable businesses (high-value clients).

Get to know your target audience. Who are your buyers? Develop a few buyer personas, based on their job titles, role in the decision-making process at their organizations, and a few other factors. Having a few buyer personas helps you market better by giving you a picture of who you’re trying to reach. Knowing who your target audience is, what challenges they’re facing and how your product or service might help their company is critical if you’re going to produce content that pulls them to your company.

Identify your best channels for reaching your audience. There’s a lot of new marketing technology and more is becoming available monthly. It all promises great results for your marketing efforts. You’ve got to weigh these channels and determine which produces the best results for your budget. You need to know where your buyer personas hang out on social media so that you’re not investing a lot of resources in Facebook ads, only to find out that your target audience spends a lot of time on LinkedIn.

Get to know your marketing ROI for your channels. You can drill down your marketing ROI further to determine how each area of your strategy is faring in delivering customers. Social media is the flashy new kid in town, but simply don’t assume it’s outperforming more traditional marketing channels. Calculate the return you’re getting on various marketing channels and use this to inform how you publish your content.

Use telemarketing to improve your marketing ROI. Telemarketing is not only a tried-and-true traditional marketing method with a consistent and reliable ROI, but it can also help you refine your digital marketing campaign. Through a personal conversation with a potential buyer, you develop a personal connection that is more difficult to achieve with a social media posting or an email newsletter. You can also gain valuable information for your other marketing channels:

  • Identify all the decision-makers involved, which can be extensive in a B2B purchase
  • Understand the organization’s decision-making process
  • Find out where they are in the process, and when they expect to make a decision
  • Determine their budget availability
  • Hear about which of your competitors they’re considering and why
  • Talk over any reservations they may have about using your product or service

These conversations can help you better shape the content you post on social media, improve the timing of your email newsletters to where they are in their process of making a decision, and find out how they prefer to receive content from your company. The opportunity to receive immediate feedback from your prospects is a valuable component of an effective marketing strategy.

Marketing ROI: Essential Questions to Ask

Determining your return on investment (ROI) for marketing may seem challenging. How can you quantify results like brand engagement and awareness, or build your reputation as an expert in the industry? Rather than abandon measuring marketing ROI and embracing a trial-and-error methodology, though, there are reliable ways to determine whether your marketing dollars are being used effectively.

Here are some questions you can ask to determine whether your marketing plan is resulting in growth:

What is the purpose of my marketing plan? In order to know whether you are meeting your goals, you need to know what those goals are. Take time to define where your marketing plan fits within your broader company goals. A good question in this discussion is, “What can marketing do for the company’s objectives that will deliver the most value?”

Know the metrics that will measure success? Particularly in the age of social media, marketing teams can get caught up watching all the wrong metrics. For instance, for a long time companies got excited about watching their Facebook “likes” increase. After a while, though, it became apparent that the ease with which a consumer could like a company was not a mirror of the effort it took to actually convert them to a customer. As a result, companies stopped using likes as a sole indicator of marketing success.

There are four basic areas that might guide your metrics for determining your marketing ROI: engagement, awareness, conversion, and retention. Make sure your metrics are balanced between these four areas and define your terms (is a lead a name on a list or is a lead an individual that’s ready to talk in-person with a sales rep?).

What are the channels most likely to move those metrics? Marketers currently have a wide variety of channels to choose from in order to communicate a brand message. You need to determine which channels will support a healthy marketing ROI. For instance, if you’re in B2B sales, you’ll prefer to use LinkedIn over a site like Pinterest.

Related: Improve Your Marketing & Drive More Profits

Likewise, you need to be sure that you’re measuring the ROI for any channel that you’re using as a part of your marketing plan. If you’re utilizing an email newsletter, you need to run analytics on the number of click-throughs to your website, and how many of those convert to customers.

One marketing channel that has a reliable return is telemarketing. Telemarketing offers a way to connect on a personal level with your target audience, gives you an opportunity to answer questions and address reservations, and helps you nurture leads that might otherwise unfollow you or unsubscribe from your email newsletter.

What kind of marketing ROI can you expect when you use telemarketing as part of a well-balanced distribution plan?—Take a look at our ROI calculator. Once you’ve seen how effective telemarketing can be for your marketing plan, give us a call to talk more.

Last Updated on September 14, 2023 by Ronen Ben-Dror

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