The Easy Way To Calculate Marketing ROI
Ask yourself an important question — when wass the last time you determined your business’s marketing ROI? By some estimates, about 40 percent of organizations are checking in on this particularly important number every month. The other 60 percent tend to calculate their marketing ROI quarterly, every six months, or once a year. Which of these is best?
Basic Math is Not So Basic…
There is a lot to unpack in terms of the best practices undertaken by every company out there. Nonetheless, understanding business expenses when compared to revenue should be a high priority. There is a basic formula that can be used to determine marketing ROI:
[(sales – marketing cost)/marketing cost] x 100 = ROI percentage
Simple, right? Well, this is where things get a little tougher. While the formula makes for an ‘easy’ approach to getting information, it doesn’t take into account everything that goes into running a business. In reality, this formula is essentially providing info regarding revenue and nothing more. To be clear, revenue is important. However, while marketing ROI determination is the focus, it can also be a case of not seeing the forest for the trees.
Getting On The Same Page
A disconnect between marketing and sales departments can often arise because each is operating off off their own set of goals. More often than not, the only time these two entities come together is to discuss why things are going badly. For smaller businesses, this is often a point of no return. A mad dash ensues where best practices go out the window. Revenue becomes the only thing that matters because cashflow is critical to keeping the lights on. This means reducing costs anywhere and everywhere. Ultimately, the whole operation suffers, including impacting personnel.
In recent years, more attention has been paid to ROI as the sole indicator of marketing success and the disadvantages that come with this approach. For many marketing departments, a solid ROI shows they have been efficient in their work. Campaigns look to be working, with upticks in revenue that make everyone happy. But are these same campaigns being effective at increasing profit? Profitability ends up being quite important as it is a critical element in determining a company’s ROCE (return on capital employed).
What Defines ‘Success’?
All of this to say that “easily” calculating marketing ROI may not be the best way to determine whether or not a company is moving in the right direction. There are a number of ways to determine success. These markers of success will differ between companies. However, at the end of the day, they will be better able to determine if their overall efforts are helping them reach their goals.
Business insiders and data scientists do agree on one thing, though, and that is information is golden. Accruing and breaking down data is imperative to understanding the overall impact (positive or negative) that a company is having. It is critical that all teams in the operation are well-versed in measuring and assessing pertinent data. Moreover, this also means being capable of effectively reassessing efforts in order to make changes to campaigns and strategies when necessary.
In the end, though, determining (and using) marketing ROI isn’t as simple as it gets made out to be. That’s why getting help is a critical step in making the numbers work for you. MindEcology is an Austin advertising agency who has championed data science for years. Let our experts show what your operation is missing, as well as what you need to get back on track. Call us today.