Every successful business measures their return on investment or ROI to know the profit they made. Just like in any other business scenario, your marketing efforts also need to be measured. Once you launch your marketing campaigns you need to monitor whether the campaign brings in profit or incurring loss. ROI compares the amount of money you invested in a project with the revenue you gained from it.
According to HubSpot’s “Not Another State of Marketing Report” in 2020, over 75% of marketers said that their company was reporting on how marketing campaigns directly impact their revenue. Majority of marketers want to find out if their marketing efforts are profitable. It can help them make important business decisions. Even though companies want to determine their marketing ROI, sometimes it can be a challenge. For example, if a company is running a PPC ads campaign the data is easily available and tracking ROI is easier. However, for strategies like content marketing it can be hard to tell if your blog posts or videos are helping you sell.
In this article, we will discuss how you can measure ROI for some common marketing strategies. But first let’s take a look at how marketing ROI is beneficial for your business.
What is marketing ROI?
Marketing ROI is the way of measuring return on investment from the amount spent on marketing activities.
Marketing ROI formula
You can calculate your marketing ROI using this formula:
[((number of leads x lead-to-customer rate x average sales price) - cost or ad spend) ÷ cost or ad spend] x 100.
Number of leads: How many leads you got.
Lead-to-customer rate: The percentage of leads who became customers.
Avg sales price: The average price of your product or service
Cost or ad spend: The amount of money you spent on the campaign.
This can seem complicated, but you do not have to worry about doing the math as there are many tools available that can help you calculate your ROI.
What are the benefits of measuring marketing ROI?
Here are some benefits of measuring marketing ROI:
- Measuring ROI can justify the spend by showing you profits from your marketing campaigns.
- It can help you decide if you should keep investing in a particular activity if it is profitable or stop spending in case it is not generating positive results.
- You can decide on the budget you want to allocate for future marketing activities looking at the present results.
- You can compare your marketing ROI to that of your competitors to analyze your performance.
- It shows you how efficient your marketing or advertising campaigns are.
How to determine ROI for marketing campaigns?
There are various ways how you can calculate your marketing ROI. It depends on what you are calculating, and which factors are involved in your marketing campaigns. Different businesses use different tactics in their marketing efforts. Therefore, methods of calculating ROI vary.
Along with looking at the revenue, you can also look at other aspects of the marketing strategy that can be beneficial for the long run. For example, likes or followers on social media, or other ways customers are engaging. These elements will not affect your ROI, but it promotes your brand and contributes to long-term customer relationships.
Let’s discuss how you can calculate ROI for some frequently used marketing strategies.
Blog posts might cost less than other forms of content like video. But they can still cost you time and money. If blogging is an important part of your marketing strategy you can calculate production and promotional cost. It can be tricky to calculate production cost in terms of time. You can simply consider the amount of time an employee spent on writing the blog and multiply that with the hourly wage. You can also include the cost of any paid tools you are using to create your blog like stock images or writing tools.
If your blog is linked to a landing page, then use a tracking URL to see how many users visited the page from the blog. You can also track leads and conversions associated with a blog post; this can show you how successful your blogs are. Tracking engagement can also give you insights on how interested your users are in reading your blogs.
Email marketing campaigns are frequently used by marketers to create brand awareness, nurture leads and boost sales. It is an important tool for marketing and sales teams; hence you need to monitor how it is contributing to your ROI. Calculating the ROI can depend on the audience, your mailing list or the ads you use in emails. The important thing to track here is the traffic these emails drive to your website. If you have an ad or a CTA in your email, make sure to include a tracking URL. This will help you determine the amount of traffic sent to your website through emails, and how many actually ended up buying your products.
If you are using social media platforms like Facebook, Twitter, LinkedIn or Instagram, you can look at how much you are spending on these platforms. You could be using some paid tools on a respective platform. Or you might be paying to boost your post. Other promotional activities include social media ads. The insights from your ads or promotional posts are readily available on those respective platforms. You can also look at the time spent by employees on the creation of content for social media. Calculate how much time your team spends on social media in a month or a year. Compare the time and money spent against the revenue you generated from these campaigns to determine if they were successful or not.
In social media promotions you can set your goals and target specific audiences. You can set a time limit on your ads and decide the budget you allocate. By measuring your ROI, you can determine whether your social media promotions are adding to your overall revenue.
For pay-per-click ads, you pay for every click even if it does not lead to a sale. Even though ads are essential to increase sales, sometimes businesses still end up wasting money if their ads are not managed correctly. If you are using Google AdWords, you can find in depth data about your ad performance. This can help you analyze if the ads successfully contributed to your revenue. Once you launch ads you need to keep monitoring the ROI and the amount of wasted spend. You can use various tools to calculate your ROI or you can also use the formula mentioned above.
Metrics To Track For Marketing ROI
You need the right data to effectively track your marketing ROI. Not all metrics are going to be useful. Here are some top metrics you can use to calculate marketing ROI.
If you are doing digital advertising then reach is an important metric you can track. This metric determines how many people saw your marketing campaign. If brand awareness is your goal, then you can use this metric to ensure that you are reaching different people, rather than the same individuals.
Impressions tell you how many times your content was viewed. However, it does not take into account if the users were unique or not. With this metric you can track how efficient your campaign spending was compared to the times your campaign assets were viewed.
Website is an integral part of your marketing strategy. Each time a person visits your website, they have an opportunity to become a customer and purchase from your business.
Use this metric if you want to measure the ROI of a new website redesign. This can give you an insight into whether your new website is working and if the SEO efforts are bringing in new users.
Acquiring new leads can be expensive if your marketing efforts are not up to the mark. Determining ROI on lead acquisition is important as the goal is to keep Cost Per Lead in line with your revenue goals.
Develop a service legal agreement (SLA) with your sales team to determine how much you want to spend on acquiring leads compared to the Customer Lifetime Value.
Conversion rate is the percentage of people who take a specific action on one of your marketing campaigns. This could be by clicking a CTA on your website, signing up for emails or making a purchase.
To determine the ROI for each conversion you will need to determine how much does it cost to get a customer to the point of conversion, and how much that conversion is worth.
Customer Lifetime Value
Customers are valued based on how much they spend, how many times they purchase and how often they engage with your content. You can set the criteria for customer value based on your business.
This metric is important for calculating your marketing ROI as it compares how much you spend on marketing campaigns and how valuable your customer is to your business.
Return on Ad Spend (ROAS)
ROAS is a type of ROI metric that helps you determine how efficiently you are spending your money on advertisements. This is the exact same formula as ROI, except this only lets you measure paid advertising dollars.
Cost Per Lead
This metric helps you measure how many potential customers your campaign is gaining. A lead does not make a purchase. They exchange information in return for content and offers. This information can be their phone number or email address and more.
What is considered a high or low CPL depends on various factors like your company or industry.
When calculating ROI, it is important to remember that marketing is a long-term process which will give you results over time. The ROI you measure will be low for the first few months that you measure. Gradually, you will start seeing the results with growth in your sales.
Even if you are looking for other metrics like brand awareness or social media likes, you need to ensure that they eventually contribute to sales. When you keep monitoring your ROI you can be more confident about your business decisions.
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