Track and Calculate your marketing ROI.
It is often said that advertisers would like to cut their marketing budgets in half, BUT they don’t know which half to cut! In tough times, companies often slash their marketing budgets with “blinded judgment”–a dangerous move since marketing is an investment to produce revenue, the lifeblood of any business.
“You can manage ONLY what you can measure!” Maybe Zig said that or Covey. It’s not that important who said it, just be sure to make it part of your business’s New Year Resolutions.
Marketing campaigns are investments. And like any smart investment, they need to be measured, monitored and compared to other investments to ensure you’re spending your money wisely.
Return on investment (ROI) is a measure of the profit earned from each investment. Like the “return” you earn on your portfolio or interest on your bank account, it’s calculated as a percentage relative to the dollars invested. In simple terms, here is the calculation:
(Profit – Investment)
Investment
ROI calculations for marketing campaigns can be complex–you may have many variables on both the profit side and the investment (cost) side. But understanding the formula is essential if you need to produce the best possible results with your marketing investments.
With proper ROI calculations, you can measure the campaigns that deliver the greatest ROI. Monitoring your ROI allows you to improve your marketing campaigns and provides guidance on how to adjust your offer or change a campaign to achieve the best performance.
Most importantly, ROI management allows you to justify marketing investments. By focusing on ROI, you can help your company move away from the idea that marketing is only an expense that can be cut when times get tough.
| Best Case | Neutral Case | Worst Case |
| You measure and track the ROI of all of your marketing investments. Your campaigns deliver the highest possible return and you’re able to improve them over time. Your organization understands and agrees with the choices you make because there’s solid data to support your investments. | You calculate ROI on some investments, but because it can get complex, you don’t attempt to measure it at all times. You have a general idea of how your investments perform relative to each other, but you can’t pinpoint the exact return you’re generating. And in tough times, your budget is cut. | You don’t measure the performance of any of your investments. In fact, marketing is viewed as a cost, not an investment at all. Your company isn’t sure what works and what doesn’t, and it’s a struggle to meet goals. |
It’s a good idea to measure ROI on all of your marketing investments–after all, you’re in business not only to earn a profit, but increase them too. If your sales process is long and complex, you may choose to modify or simplify your ROI calculations, but a simple calculation is more useful than none at all.
There are several figures you’ll need for your ROI calculations:
- Cost of goods sold (COGS): The cost to physically produce a product or service.
- Marketing investment: Typically you’d include just the cost of the media, not production costs or time invested by certain employees; however, in certain cases it may be better to include all of those figures.
- Revenue: It can be tricky to tie revenue to a particular campaign, especially when you run a variety of campaigns and have a long sales process. Your finance team may have some suggestions for estimating this figure.
Set an ROI goal for your entire budget and individual campaigns: set a floor as well. By doing so, you gain more power over your budget. If you project that a campaign won’t hit the threshold, don’t run it. If you can’t get an ongoing campaign over the threshold, cut it and put your money elsewhere.
When you have an ROI goal and annual revenue/profit goals, you can calculate the amount of money you should spend on marketing–just solve the ROI formula for the “investment” figure. You’ll be more confident that you’re spending the right amount of money to meet your goals.
Tracking ROI can get difficult with complex marketing campaigns, but with a commitment and good reporting processes, you can build solid measurements, even if you have to use some estimates in the process. There are several 3rd party software that track every call that comes in and digital tracking methods to assist you in this process.
Use your ROI calculations to continually improve your campaigns. Test new ways to raise your ROI and spend your money on the campaigns that produce the greatest return for your company.
The key here is to allow time for the campaign to grow. Many times, false expectations are set or assumed. Marketing is not magic: it is a science and an art that takes creative thought and experienced know-how to gain continuous, factual, long-term success.
Happy Returns!
