In the business world, we are always paying attention to the return on the investment (ROI). Without a doubt, this KPI is considered as one of the most important since it reflects the overall business performance. Quite often while conducting ROI analysis, companies undervalue calculating the return on the marketing investment(separately). Today, we will discuss why it is so important to measure marketing ROI and how it can be improved.
What is Marketing ROI and why do marketers need to optimize it?
Marketing return on investment (ROI) is a performance measure which shows the degree to which the marketing efforts contribute to the overall revenue growth.
Marketing ROI formula:
(Earnings from Marketing related efforts — Marketing costs) / Marketing costs
= Marketing Return on Investment (Marketing ROI)
How marketing ROI can be used by marketers and why ROI analysis is important:
Knowing marketing ROI can help marketers to identify the right direction – defining which marketing campaigns are successful and which ones are not. As a result, ROI analysis can help marketers to enhance their marketing efforts and improve ROI.
Understanding the marketing ROI will help marketers to:
1. Plan the Budget for the Future Marketing Campaigns
This is one of the most important tasks for a chief marketing officer (CMO) of any company- making sure that the resources were allocated efficiently. That is why it is important to conduct a marketing ROI analysis to have a clear vision regarding the marketing campaign’s efficiency. To ensure budget and resources are allocated for future campaigns, it is crucial to calculate the marketing ROI for the previous year and justify the current marketing expenses at the executive level.
2. Provide Effective Budget Allocation
Understanding which marketing campaigns bring more revenue will help you to allocate the marketing budget properly. With this in mind, marketers can identify the right mix of offline and online campaign efforts better and, as a result, further improve the marketing ROI. This will also help to avoid ineffective marketing spending that could also affect the overall revenue growth.
3. Know the Competition within the industry
Monitoring the marketing ROI of competitors allows marketers to accurately understand how their organization is performing within their specific industry. If the financial data is publicly available, marketers can estimate the marketing ROI of their competitors and adjust their strategy. Such ROI analysis can be very useful to companies, especially if they are struggling with defining their competitive advantage.
As we can see, it is crucial for marketers to calculate and optimise their marketing ROI performance.
Marketing ROI metrics
Below you will find a shortlist of important marketing ROI metrics that you should monitor. This will help you to keep track of your marketing efforts and enhance your marketing strategy.
Without a doubt, monitoring and trying to increase website traffic remain one of the most important tasks for digital marketers. Nevertheless, often marketers forget that it is more crucial to understand how many users actually converted into leads.
Having thousands of users that never convert at the end does not bring you closer to your goal. Therefore, a focus on increasing leads, traffic that converts at the end is an important marketing ROI metric to track.
2. CPL (Cost per Lead) or in other words cost per conversion
Tracking your converted users (leads) is important. Now you want to dig one step deeper and understand how much each of these leads cost for you. While doing a short analysis of your CPL, take into account that generally CPL should stay way lower than the cost of your service/product. Take into account also an important aspect while analysing your cost per lead: If it is a one time purchase or an annual subscription.
3. CLV (Customer lifetime value)
As mentioned above, your CPL should be lower than the price of your product/service. Nevertheless, the marketing ROI metric Customer lifetime value (CLV) allows you to understand how much a customer is potentially worth the entire lifetime with your product/service. This is important to acknowledge, since keeping a customer is a goal for every business and recognizing the total profit that one customer brings, gives a good overview on how much you can possibly invest in acquiring new leads.
4. Customer acquisition cost (CAC)
This is probably one of the most popular marketing ROI metrics to track for marketers. Calculating CAC will give you an overview of the total investment of acquiring one customer. Reducing this marketing ROI metric is an overall goal for marketers.
Tips for reducing CAC:
- Analyse customer retention and figure out ways to increase it.
- Allocate marketing budget more efficiently towards those channels that work the best.
- Keep on analysing your customer behaviour to better understand your target audience. Improve user personalisation.
Marketing ROI calculator
Calculating your marketing ROI is an important starting point and one of the most important steps on your way to a better marketing performance. Every marketer wants to prove that the marketing efforts are profitable and bring value to the overall business.
We decided to list a few great marketing ROI calculators that you can test and start with if you want to do it manually by yourself.
- Have a look at this marketing ROI calculator in Excel that will help you to calculate your marketing ROI for direct mail campaigns.
- Check out this marketing ROI calculator that will enable you to calculate your marketing ROI for various marketing tactics such as email marketing, influencer marketing, advertising and content marketing. This is a very easy to use calculator for any marketer.
- If you are specializing in email marketing, this marketing ROI calculator would be perfect for you.
- Worth to check the marketing ROI calculator from Hubspot. It is a very fast and easy to use marketing ROI calculator that will give you an overview of your spendings.
- Another marketing ROI calculator that is easy to use. Here you can also find out more about marketing ROI formula.
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Imagine that you already have your marketing ROI calculated. What would be the next steps? Right, it would be time to improve it!
In our next article, we will show you how to improve your marketing ROI in 4 easy steps!
We are happy to help you enhance your marketing performance.