Marketing ROI is exactly what it sounds like. It is the return you get for your marketing investment. In the very simplest of terms, marketing is about driving sales. However, the most successful marketers know that it is even more critical to drive profitability. That means you need to clearly understand the return on each dollar invested in marketing campaigns.
What is marketing ROI?
Return On Investment (ROI) is a financial calculation used to measure the gain or loss from an investment. In marketing terms, it is the measurement of the return on investment from the money used for marketing efforts, and it provides insights into the effectiveness of your marketing.
How do companies use marketing ROI?
Ultimately, they use it to understand whether their investment is working or not. You wouldn’t make another investment without knowing what it will do for you. Why would you do that with marketing?
- Determining where to allocate their marketing investment. When you understand which channels, campaigns, or tactics prove fruitful, you know where to allocate your spend the next time.
- Setting sales and marketing goals. Marketing ROI can help your goal-setting become more of an exact science because you’ll have history to tell you what happens. Gut instincts can be good, but you probably don’t want to make decisions about your company finances that way.
- Determining product details. Marketing ROI can also help drive decisions about products and services. The more you know about what your customers respond to (and don’t), the better you’ll be able to tailor your offerings.
- Understanding your business. Business owners want to know what they are getting for their money. Marketing is a significant investment, and business owners need to know how their money is working for them.
What’s the difference between sales and profitability?
Driving sales is great, and we all want higher revenues. But you need to understand how much investment is being used to generate those sales and if the end result was actual profit. When you know this, you can allocate your marketing investment in a way that produces the highest overall profitability.
Before you can start measuring marketing ROI, you need to build tracking mechanisms into your campaigns. There are many ways to measure marketing campaigns: landing pages, QR codes, email addresses, point of sale codes, and phone numbers are just a few. Once a measurement method is put in place, tools like Google Analytics and your CRM system make it easy to see how much revenue was driven from the campaign.
Without incorporating these things into your campaigns, you’ll never know what generated revenue and have no idea how to respond when asked, “What marketing campaigns are working?”
A marketing audit can help. It is a systematic review of a business’s marketing activities to determine what’s working and ensure that the marketing plan aligns with its goals. This detailed and systematic review of all aspects of the marketing plan, philosophy, and current conditions will guide a strategy to increase performance, growth, and customer loyalty.
How do you calculate ROI?
The most basic way to calculate the ROI of a marketing campaign is to compare the marketing investment to the revenues generated by the campaign.
Start by subtracting the sales from the specific product or service you were marketing in a comparable previous period from the sales during the campaign. This will show the sales growth. Then divide that number by the marketing cost.
Period Sales – Previous Period Sales = Sales Growth
(Sales Growth – Marketing Cost) / Marketing Cost = Marketing ROI
Previous monthly sales were $120,000. During the month of the marketing campaign, they were $125,000. That means the sales growth was $5,000.
$3,000 was spent for the campaign, meaning the ROI for the campaign was 40%.
((5,000-3,000) / 3,000) = 40%
40% is a pretty great ROI, and here it’s an example that demonstrates the calculation.
Are you tracking marketing ROI?
All this technical talk can be intimidating. But, we can unpack the jargon and math calculations into easy-to-understand and straightforward terms. So, let’s schedule some time to talk about your business and support you in achieving your goals. Our passion is helping companies just like yours use marketing strategies to achieve business goals, and we’d love to put our experience to work for you.