Measuring the impact of a marketing campaign helps a business determine whether there is a corresponding growth in profits due to a marketing initiative. The lessons that a company learns by accurately assessing the return on investment (ROI) of its marketing campaigns help stream future marketing campaigns for better returns.
The funds you invest in marketing activities may be revenues generated by the business or from small business financing offered by lending companies. Regardless of the source, you need to ensure that the funds are invested wisely for optimum results.
This article will show you how your business can get the expected ROI from the marketing initiatives. Let’s explore this further.
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What Is The Return On Investment (ROI), And Why Is It Important?
Return on investment (ROI) is a significant business performance indicator that compares the investment in a business venture with the returns generated from that expense. It measures how successful an asset is over time and helps make smarter decisions in the future based on data.
Marketing ROI, specifically, is attributing growth in profit and business revenues to marketing campaigns in a business. It helps your company evaluate the impact of its market initiatives in general or the impact of specific marketing campaigns.
Marketing ROI is essential for several reasons:
1- To justify a marketing budget
To justify a budgetary allocation by top management, marketers need a marketing ROI to demonstrate how spending in marketing and advertising will impact the company’s bottom line. You need to justify your marketing spend, particularly if you’ve accessed small business financing for your company.
2- Calculating the success of a marketing campaign
Marketing ROI assists marketing teams in quantifying the impact of marketing campaigns and documents which efforts are most effective in driving revenues. This becomes a reference point for future decisions so that budgets are allocated to online and offline channels with optimal returns.
With this data, you can adjust your budget to allocate more funds to marketing channels that have high returns.
3-. Determine allocation of marketing budgets
There are various online and traditional marketing options that you can explore as a business. You may also combine these options in a marketing mix. A marketing ROI helps dictate how to distribute the marketing budget across the various channels depending on which channels bring in the most revenues.
4-. Comparison with competitors
Monitoring your marketing ROI enables you to make comparisons with other similar businesses within the industry. Using that information, you can establish how effective your marketing initiatives are relative to competitors in the industry and fine-tune your marketing budgets to adopt best practices.
How To Get The Expected ROI For A Marketing Investment
Now that you’re familiar with what marketing ROI is and why it’s essential, we’ll look at what you need to do to get your expected ROI.
-Have well-defined goals
Having clear objectives makes it possible for a business to craft marketing campaigns and advertisements that deliver on expectations. Rather than focus on marketing ROI alone, you can also focus on broader marketing objectives such as brand awareness and online media engagements such as unusual traffic boosts on social media or your landing page.
Have clear goals and how these objectives can be taken into consideration when measuring the marketing ROI.
-Establish marketing costs
Any marketing investment has various costs associated with it. The costs range from the creative development of content where a business may outsource content creation to freelance writers to the overheads involved in coming up with advertisements, promotional expenses, media buys, and so forth.
Clear marketing costs help marketers develop well-thought-out methods of measuring marketing ROI and what they need to consider in their ROI calculations.
-Tracking marketing data across various channels
In today’s omnichannel market scenario, a consumer’s buying journey might take them through various platforms before they finally make a buying decision. A consumer may encounter a link on a blog post that leads them to subscribe to your mailing list. The consumer may buy by getting to a landing page from a marketing email.
Having effective measuring tools empowers the business owner to attribute consumers’ buying decisions to various channels. Marketing analytics and online page analytics help determine the effectiveness of online and offline platforms, giving more accurate insights for marketers to measure marketing ROI more effectively.
How To Measure The ROI (A Basic List-Guide)
Many businesses find calculating their marketing ROI a complex exercise, and it can be. That’s because determining a marketing ROI takes into consideration several factors. First, your calculations need to boil down to a specific period in which you measure your marketing expenditure and the revenue realized.
Secondly, you’ll decide what metrics you’ll use in calculating ROI. Will it be gross profit, net profit, customer lifetime value, or the average sale value? You’ll decide based on what parameters mean the most to your business.
The simplest way to calculate marketing ROI is by comparing sales to your marketing costs.
This is the equation you’ll use:
- (Sales Growth – Marketing Cost) / Marketing Cost = Marketing ROI
To get the percentage marketing ROI, you multiply the result by 100.
For instance, if you’ve invested $10,000 in marketing and you’ve generated revenue of $30,000, then:
(30,000-10,000) / 10,000 = 3
Nonetheless, this formula is too simple and may not yield the most accurate marketing as it overlooks certain critical factors. For instance, it assumes that all sales growth within the period is attributed to the marketing campaign.
Here’s a more accurate marketing ROI calculation that subtracts organic sales growth from the sales growth realized.
- (Sales Growth – Organic Sales Growth – Marketing Cost) / Marketing Cost = Marketing ROI
Even with this formula, it’s still crucial to define what the “marketing cost” is. It can be the simple cost of goods used to derive the Gross Profit of a sale. However, you may decide to go deeper and calculate the ROI by factoring in additional costs used when calculating the Net Profit. Such costs include overheads, media buys, and so forth.
You can also calculate marketing ROI by using customer lifetime value (CLV) using this formula:
- Customer Lifetime Value = (Customer Retention Rate ) / (1 + Discount Rate / Customer Retention Rate)
This helps determine the value of an individual consumer to a brand and is helpful in measuring long-term ROI through a buyer’s lifecycle.
Accurately calculating your ROI for marketing investment is critical to ensure the correct marketing spend for maximum returns and guides future marketing campaigns. You can confidently approach lending institutions for small business financing for marketing when you’re clear on the anticipated returns.