Understanding your marketing ROI will help you take your business in the right direction.
Marketing is an investment. Whether you’re hiring an employee, contracting a third party, or putting in your own time, you need to make sure you get back more than you put in. Measuring your marketing return on investment, better known as marketing ROI, on an ongoing basis can help you nail down the rights strategies and keep your business growing.
Keep reading as we guide you through what marketing ROI is and how you can start measuring and improving yours.
What is return on investment?
Return on investment (ROI) is a measurement that compares net profit to the cost of your investment. Marketing ROI specifically compares your profit to your marketing spend. This metric will then tell you if your marketing is producing results beyond general brand awareness.
ROI calculations can also be used to analyze the effectiveness of a specific marketing campaign or type of marketing. Doing so will help you figure out what strategies are working well so you can maximize your marketing budget. For example, if you’re getting drastically better results from your digital marketing strategies than you are from your direct mail efforts, it may be time to rethink and re-prioritize.
As you continue to measure your marketing ROI over time, you’ll understand what results should be expected for your business and what results signal a need to pivot.
How to calculate marketing ROI
There are many routes that you can take to calculate marketing ROI, which is most frequently expressed as a percentage. One popular option for calculating ROI uses the simple formula below:
(Sales Growth – Marketing Expenses) ÷ Marketing Expenses x 100 = Marketing ROI
For example, if your sales grew by $10,000 in a given quarter and your marketing costs totaled up to $2,000, your marketing ROI would be 400%.
However, the sales growth you plug into this formula isn’t necessarily the direct result of your marketing efforts. This is why many business owners actually use the alternate formulas listed below to calculate their marketing ROI more accurately.
As a business owner, it’s beneficial to ensure that you’re specifically calculating your return on investment from a specific marketing plan or individual campaign. In order to do so, you need to take out the sales growth that isn’t directly attributable to your campaign. This formula does just that by removing your typical sales growth from the equation:
(Sales Growth – Average Organic Sales Growth – Marketing Expenses) ÷ Marketing Expenses x 100 = Marketing ROI
Let’s say your sales growth is still $10,000 and your marketing investment is still $2,000. In this formula, you’ll also need to take into account your typical sales growth in the given time period when no campaign is in place. We’ll say your average organic sales growth is $3,000. In this case, your marketing ROI would actually be 250%. This is a more accurate representation of the effect your marketing is having on consumers.
With many business owners moving toward digital marketing strategies, it’s become common to use conversion rates in place of calculating traditional marketing ROI formulas. Tools like Google Analytics automatically track your conversion rates for specific campaigns, leaving little room for biased data. As a result, you’ll get a clearer picture of how much you’re spending versus how many customers you’re converting.
Improving your marketing ROI
It’s hard to put an exact number to “good marketing ROI.” In addition to the fact that there are many different ways to measure ROI, standard ROI varies greatly by industry, the marketing channels you’re using, and even the goals of your campaign. The best way to ensure that your ROI is in a good place is by constantly working to improve your marketing ROI with each quarter. You’ll also want to ensure your marketing ROI always exceeds 100%, so you’re never just breaking even.
Here are a few steps you can take to improve your return on marketing investment:
1. Focus on digital
As we mentioned earlier, the results of digital marketing are infinitely easier to track than the results of traditional marketing channels. This makes it easy to get reliable marketing metrics and know exactly where your strategy needs to improve.
Digital marketing is also more effective. With 73% of internet users using both search engines and video to research products, meeting your audience online will help you reach them with your message. Digital marketing also lets you better target your exact desired audience, so you naturally grow your sales without increasing your expenses.
2. Monitor brand sentiment
Even if you’re executing a stellar marketing strategy, your online reputation can still be holding you back from improving your marketing performance. After all, if you’re pushing out content that displays your expertise but your customers are saying you can’t be trusted, your target audience may get conflicting messages. This limits the effect of each piece of content you put out.
One of the simplest tactics you can use to monitor what people are saying about you is staying on top of brand mentions on social media platforms. For a broader look at your brand sentiment, you can use tools like Podium Feedback, which automatically gathers information about why customers love your brand (or why they’re leaving).
When you actively track your brand sentiment, you’ll be able to respond to any negative changes in sentiment before they begin to affect your marketing ROI. Tracking sentiment can even help you gain insight into what types of marketing campaigns are changing customer perceptions, leading to more consistent sales growth and an impressive bottom line over time.
- Take action every quarter
It’s important not to stop at calculating and tracking your marketing ROI. To make the most out of this powerful marketing metric, you should update your strategy at least once per quarter based on changes in your ROI.
When reevaluating your strategy, analyze the data you have to pinpoint any trends that are causing your ROI to grow or drop. Have you increased the amount of money you’re spending on a Facebook ad that’s not converting leads? Is your target audience responding to two landing pages differently because of their content?
Once you’ve finished your analysis, switch up what you’re prioritizing with your marketing budget to accurately reflect what your audience wants to see. This is the best way to ensure you have a sustainable marketing strategy, even as consumer behavior changes over time.
Maximize your marketing activities
Effective marketing requires a significant amount of time and money, so you need to make sure your investment leads to increasingly positive results. When you start calculating your marketing ROI at least once every three months, you’ll always be one step ahead. You’ll easily be able to catch any drops in your return on investment before they become major issues that affect your whole company’s profitability.
With our suggested steps for improving your marketing ROI, you can keep your business on an upward trend. Use smart online marketing strategies—and always track your metrics—so you can continue to grow your business and take the lead in your industry.