How To Determine Marketing ROI — And Why It Matters
No one goes into running a business looking forward to doing math other than counting stacks of money. If you’re on top of things, you’ll be mindful of your operating budget for things like marketing. But what about how to determine marketing ROI? How much of a return are your marketing dollars bringing you? If you can’t come up with a concrete answer, there’s a good chance you’re mismanaging these essential funds.
Is Business Going Well? No, but really…is it?
Many business owners consider a busy day to be a sign that things are going well. Sales took place & there was enough activity to keep staff occupied all day. Tie together enough of these days, and it seems like all is well. That is, of course, until you compare the sales you’re making with the amount of money you’re spending on marketing products/services. If more of your hard-earned scratch is going out than is coming in, you’ve got problems.
So, the inevitable question arises — how does one determine marketing ROI? Well, a basic formula would go something like this:
[(sales growth – marketing costs)/marketing costs] x 100 = ROI percentage
The problem is that this is fairly incomplete. It only takes into consideration revenue, thereby making your total ROI percentage not indicative of ALL aspects of doing business. High on the list of things being omitted are sales growth not related to your marketing efforts AND a drop in sales growth over the same time. If you look at the same formula but think about profits vs. revenue, the resulting ROI percentage may actually be way different. However, this actually gives you a more realistic look at your operation.
Defining the ‘R’ in ROI
Every company has to decide what they feel best returns on marketing investments look like. One of the more common ways this is done is seeing whether the return calculated is on par with the company’s overall goals. Every business has to establish a solid business plan, complete with strategic marketing work. A timeline is also created so as to keep the plan’s short- & long-term goals on track.
Again, it’s important to note that all companies are different, even within the same industry. However, if there is one datapoint that means something to everyone, it’s an increase in sales. If this number isn’t cutting it, then it means that your marketing campaign(s) has to change.
Other Things to Consider
The thing about marketing ROI is that you can, in theory, find other important factors that augment what was once a simple formula. A trying as that might be, there is a lot of knowledge to be extracted from questions related to these other factors:
- how does organic growth of sales impact sales growth figures?
- does it make more sense to figure out your ROI monthly or annually?
- are you or your marketing agency softening the blow of a low ROI with soft metrics?
- should you focus on sales leads or sales growth over time?
- how does the lifetime value of a customer factor into things?
In the end, no matter how you decide to determine marketing ROI, there has to be room to makes changes. The numbers will bear out both how well things are going, but more importantly, where your campaign(s) is coming up short. Calculating marketing ROI regularly can help you from flying blind when it comes to the money you’re spending. With data indicating where you aren’t doing so well, you can direct your efforts in the right place to see effective change.
No shade, but understanding the math behind marketing ROI isn’t easy for everyone. As such, why not get a little help from experts by clicking here today. You’ll be glad you did!