ROI in marketing (return on marketing investment) is important to justify marketing campaigns and understand if they’re profitable for you to run. If your marketing ROI metrics aren’t demonstrating profitability, you’ll need to restructure your strategy and reevaluate your investment.
We will explain how to measure return on marketing investment, what are the challenges, and some examples to help you better understand whether your efforts are profitable.
ROI, short for return on investment (also called return on marketing investment), is the profit you earn for each dollar you spend on marketing.
If you spend $100,000 on marketing and have a revenue of 4:1, you’ll expect to earn $400,000 from your investment.
So, what is marketing ROI?
It’s a measurement of success in navigating your sales funnel. If your returns are too low, it’s an indicator that something in your ROI digital marketing is not working properly, leading to potential losses. You need a healthy ROI marketing for any campaign to be profitable.
ROI in marketing is important, as it helps you create benchmarks to better understand if your strategies are leading to quantifiable results or whether efforts can be better utilized elsewhere.
Sales and marketing will use ROI in marketing to:
ROI for marketing also allows you to conduct in-depth competitor analysis. You can estimate your competitors’ performance based on your own results and forecasting ad spend.
If you’re not tracking how much each dollar in marketing is netting you in total, you can’t know what measures to take to improve sales.
ROI in marketing has a wide range of what looks “good.” You may want to improve ROI for marketing with a 2:1 ratio for a small hairbrush that sells for $2, but if you have a 2:1 ratio for a product that nets you $40,000, it may be worth it.
In general, the following is true:
But let’s assume the hairbrush you sell for $2 costs just $0.25 to manufacture. In this case, the smaller returns are more than acceptable.
Anything between a 5:1 and 7:1 ROI is more than acceptable for most companies.
You’ll need to have your in-house marketing team run the figures for you and determine what ROI ratio you need to remain profitable. If you have a very high lifetime value (LTV) for the customer, you may find that your initial return on a sale is low, but in the long term, you have high retention and LTV.
If you don’t know how to determine your ROI for marketing, you can use the marketing ROI formula below to get started.
Determining your ROI in marketing requires you to have four main metrics:
With this in mind, your marketing ROI formula will look something like this: [((NOL x LTC x ASP) – Cost/Ad Spend) ÷ Cost/Ad Spend] x 100.
So, how to calculate marketing ROI? It can be measured by determining your sales growth and marketing cost (MC). For example, your marketing ROI formula at a very basic level would be: (Sales Growth – MC) / MC * 100 = ROI from marketing.
However, this is growth from all channels, so for your marketing ROI calculation, you may want to use the previous example for a more precise return on marketing investment.
While you’re at it, you can also measure other marketing ROI metrics that tie into your overall marketing:
ROI in digital marketing also includes impressions and page views. You can use tracking codes to determine the total number of page views a product receives, traffic sources, and conversion rates.
Your website can be set up to aid your ROI digital marketing efforts and make it easier to track conversions and lead generation process.
But you can also increase your impressions and page views through organic channels. For better ROI marketing you may run a strong social media campaign, and you can track all leads and conversions to your site using analytics.
You can also see how many people you’re attracting to your site through your social media marketing.
Your ROI in digital marketing revolves around conversions. If you want to increase ROI, you need to have higher conversion rates. Conversion rates are determined using the following marketing ROI formula: total conversions/interactions.
As a marketing ROI measurement, for example, you may have 100 sales and 5000 leads, equating to 100/5000 = 0.02 * 100 = 2% conversion rates.
If you can increase conversion rates through a refined sales process to 3%, you’ll earn significantly more from the same ad spend.
ROI in marketing may include cost per lead, which doesn’t mean a sale is made. Your cost per lead maybe $0.10, but the cost per acquisition is $100. In this case, as a result of marketing Roi calculation, you have a very low cost per lead and a high conversion rate.
Why?
That’s for your marketing team to determine, but it’s very likely that a weakness in your marketing funnel is causing the disconnect. Stronger optimized landing pages or time spent educating the lead to convert them may be necessary.
Your cost per acquisition or sale is a term when evaluating ROI in digital marketing that relates to the total cost of converting a prospect into a paying customer. You’ll need to consider multiple factors, such as the cost per lead and the associated costs to convert the lead.
ROI in marketing can also consider the customer’s lifetime value (LTV). For marketing ROI measurement, you’ll need to analyze your customer data to determine the LTV for your business, but it’s a measurement of how much you can expect to earn over the customer’s lifetime from the first conversion.
For example, let’s assume the customer value is $100 and the average customer lifespan is 10 years. You can determine LTV = ($100 x 10) = $1,000.
Key business stakeholders must define KPIs and ROI marketing metrics to better understand which metrics are best for you to follow. Remember, over 79% of leads do not convert to a sale.
ROI in marketing does come with challenges, primarily with calculations. A few of the many obstacles that you may face, even with today’s technologies and systems, are:
Teams must identify their challenges and determine how to overcome them internally. If they do so, they can move on to improving their marketing ROI metrics.
Every business should be looking for ways to improve its ROI in marketing. The higher the return, the better. But where do you start?
Here’s how to Increase ROI in marketing.
In order to improve your ROI in marketing, you need to understand your audience. Use your customer data to analyze user behavior, understand their needs, and adjust your marketing messaging.
To better understand and improve your marketing ROI, examine the effectiveness of your core metrics and drill down further to determine their real impact on revenue. For example, if traffic is one of your core marketing ROI metrics, make sure that you’re also measuring your conversion rates, email bounce rates, unique visitors, and other metrics to get an overview of their impact.
Some channels may increase ROI in marketing than others. The only way to know which channels will yield the highest return on marketing investment is to experiment with them.
Try experimenting with the most crucial channels for ROI marketing effectiveness, like email marketing, social media marketing, video marketing, paid ads and direct response marketing. Brand ambassadors and loyalty programs may also be worth testing if they are relevant to your business and audience.
Split testing is a tried-and-true method of improving marketing ROI metrics. Implement A/B testing of different variations of your copy, calls to action, graphics, website colors, and even your navigation to see which configuration delivers the best results.
Suppose you’re not achieving your desired ROI in marketing. In that case, it may be because you don’t know your customers well enough and need to pay attention to audience analysis as you are missing the mark with your marketing messages.
To get to know your audience, conduct market research to learn their pain points and what they’re willing to pay. You can also monitor social media to see what people are talking about and read online reviews to learn more about buyer pains and needs.
If your goal is to optimize your ROI in marketing, then you must create a plan for marketing ROI measurement and tracking your progress. Without a tracking plan, you won’t know if your efforts are paying off.
Identify the metrics of return on marketing investment that you need to track and use tools like Google Analytics to start tracking these metrics. Google Analytics makes it easy to track conversions or E-commerce sales through the Ecommerce report feature.
Personalization can significantly improve your ROI in digital marketing. Research shows that personalization can boost ROI by 10-30% and revenues by 5-15%.
Use CRM software to get insights into customer behavior and personalize experiences based on this data.
Content marketing is a long-term strategy that can help improve your ROI in marketing over time. With the right content plan, you can build awareness, improve user engagement, and gain the trust of prospects interested in your products.
Even today, email marketing consistently provides a generous ROI in marketing. Use email marketing to inform, nurture leads, and convert potential customers. To further improve your ROI, find ways to streamline email creation.
Make sure that you’re consistently analyzing the results of your email marketing and tweaking your strategy as needed.
Social media marketing and PPC can improve your ROI in marketing by driving more targeted traffic to your site and landing pages. To maximize the effectiveness of these strategies, make sure your marketing message is on-point and your ads target the right users.
One simple way to improve your ROI in marketing is to make sure that your tech stack works well together. Today’s consumers expect personalization across all platforms. If they’ve already purchased a product, they don’t want to see a promotion for it in an email message or when they visit your site. For a better return on marketing investment make sure that your CRM integrates and communicates with other tools in your personalized marketing strategy to provide a seamless experience.
If you don’t have a loyalty program, consider implementing one. Customer loyalty programs are a simple way to improve ROI in marketing because they give existing customers an incentive to return to your business. Boost your ROI marketing by making sure your program is offering special promotions, new products, and other incentives that make members feel special.
ROI in marketing is best seen through examples and some of the most common in the digital marketing space are:
Email is one of the most profitable forms of marketing, with many companies earning $38 for each $1 spent on it. If you spend $1,000 on software and design and generate $10,000 in revenue, you’ll have a return on marketing investment of 900%.
Companies with a 38:1 ratio would turn $1,000 into $38,000 in revenue.
Imagine being a small dog toy company, investing $5k in Instagram and Facebook Ads. You generate $25,000 in revenue, subtract the initial investment of $5,000, and are left with $20,000 in income, or 400% ROI.
A medium-sized dental company wants to educate potential leads, so it turns to content marketing. The ROI in marketing for this campaign is 400%, with $3,000 spent on content creation and $15,000 in total revenue generated.
Organic search rankings are cheaper in the long term than ad placement, so an apparel company spends $2,000 on SEO services that generate $20,000 in revenue. When subtracting the original costs, the ROI is 900%
If you’re waiting for SEO to provide results, you may decide to use PPC marketing and pay $4,000 for clicks that generate $20,000 in revenue. What’s your return on investment? 400% because you need to subtract the $4k for clicks.
ROI in marketing, using influencers, can be as high as 500%. Imagine a local gym in Dubai running a campaign with $5,000 spent on influencer marketing, such as sponsored posts, and generating revenue of $30,000.
Video is one of the most beneficial forms of marketing, but you will have to invest in both production and promotion. You may spend $3,000 and generate $18,000, leading to a 500% return on marketing investment.
Video marketing excels for product demos and when visualizing the results of a product or a service will result in higher sales.
Once you know how to increase ROI in digital marketing, you can then focus more on ROI in marketing, refining your approach and finding exciting ways to boost revenue. You must run marketing campaigns that are profitable, and if the returns are too slim, it may not be a viable product or service to sell.
