One of the most important metrics for any marketing professional to track is return on investment (ROI). Modern digital marketing is incredibly complex and often expensive, and it’s essential to ensure that every dollar spent on marketing offers an acceptable return in the form of increased brand awareness, higher conversion rates, and ultimately higher sales.
If you are unsure what type of return your marketing investments offer, take the time to calculate your ROI so you can streamline your marketing budget and bolster the bottom line. Many organizations fall into the complacency trap, taking a “set it and forget it” approach to their marketing channels and only taking time to make changes when something goes horribly wrong.
Simple Formulas to Get Started
Calculating your simple marketing ROI is a relatively straightforward process with a simple formula:
- Start by measuring the exact cost of the marketing campaign you want to analyze. While you can simply use your entire marketing spend as a benchmark, you will eventually need to define the different marketing channels in use and calculate how much you have spent on each of them.
- Next, determine the timeframe you wish to analyze. Tracking marketing ROI over time can be challenging as some marketing campaigns may show flat or minimal growth for the first few months and then gain traction while others are more explosive at first then gradually dwindle in efficacy. One of the biggest challenges when it comes to calculating your marketing ROI is determining the actual ROI over time while accounting for different growth patterns across your various marketing channels.
- The next step is to calculate how much sales increased during the specified timeframe. For example, if sales increased by $10,000, and your marketing spend was $1,000 for the specified timeframe, you would subtract your marketing spend from your sales increase, and then divide the result by your marketing budget. Following this example, the formula would be ($10,000-$1,000)/$1,000 for a 900% return.
This simple ROI calculation is relatively straightforward and can provide a benchmark to help you determine your overall marketing ROI, but you need to delve deeper if you wish to find out your exact marketing ROI.
Campaign Attributable ROI Calculation
The previous example formula may seem accurate, but it operates under the assumption that your brand’s total month-over-month sales growth is a direct result of the marketing campaign. It’s essential to make critical comparisons for your calculated marketing ROI to be meaningful. Try using sales figures from the months prior to the marketing campaign for a more accurate formula.
Start with a one-year campaign lead-up period to calculate the existing sales trend prior to launching the marketing campaign. If you notice a 5% organic growth trend, you need to remove this organic sales growth from your ROI formula. Following the previous example and using a 5% organic growth trend for this new formula, your new campaign attributable ROI formula would look like this:
Sales increase – average organic sales growth – marketing cost / marketing cost, or
($10,000 – 5% ($500) – $1,000)/ $1000 = 850%
Most companies will see much smaller return percentages, but these examples should help you see how to calculate your marketing ROI while accounting for your organic sales growth outside of your marketing channels.
Soft Metrics to Consider
The purpose of a marketing ROI calculation is to determine how much your marketing dollars are turning into sales numbers, but the direct boost to your bottom line isn’t the only benefit of a well-crafted marketing campaign. Modern marketing professionals also track soft metrics, or other variables outside of strictly sales that help inform how effective their marketing campaigns are beyond driving sales. Some of the most important soft metrics to track include:
- Brand awareness. A new marketing campaign may not have resulted in as much of a sales increase as expected, but it may have encouraged more leads to sign up for mailing lists or take a few more steps on their buying journey with the brand.
- Social media engagement. Clever marketing can easily go viral, and one of the best measurements for gauging the efficacy of a marketing campaign is how much attention it attracts toward a brand’s social media profiles. Generating discussion and positive buzz around your brand can be an extremely powerful asset that will bolster future marketing efforts.
- Content output rate. How much did your content publication schedule fluctuate with your marketing campaign? Did your target audience appear to enjoy the content more than usual and engage with it more? This metric will help gauge the ideal content publishing schedule for future marketing campaigns.
Calculating marketing ROI is essential, and it’s vital to develop a solid system that accounts for your multiple marketing channels and variables like average organic growth. Ultimately, marketing is an essential component of any business plan, regardless of whether you sell your products and services to a consumer market or other businesses. Marketing ROI calculations are invaluable tools, so use them wisely and develop a cohesive system for tracking your marketing success over time.