by One of the most important components of a marketing campaign is to evaluate its performance and impact and profit so that it can be determined whether or not your marketing efforts are actually helping the company. The insights gained through the process can be used to drive future, data-driven strategies for smarter decision-making.
Marketing ROI is the practice of attributing profit and revenue growth to the impact of marketing initiatives. By calculating marketing ROI, organizations can measure the degree to which marketing efforts either holistically, or on a campaign-basis, contribute to revenue growth. Typically, marketing ROI is used to justify marketing spend and budget allocation for ongoing and future campaigns and initiatives.
Distribute Marketing Budgets
Across online and offline channels, there’s a myriad of possible marketing mix combinations. However, any combination of campaign initiatives require funding. That’s why understanding which online and offline efforts drive the most revenue is a must for properly distributing the marketing budget.
Measure Campaign Success and Establish Baselines
A crucial part of any successful marketing team is the ability to measure campaign success and establish baselines that can serve as a reference for future efforts. With this in mind, accurately measuring ROI helps marketers do both. By understanding the impact of individual campaigns on overall revenue growth, marketers can better identify the right mix of offline and online campaign efforts. Moreover, measuring ROI consistently allows marketers to establish baselines to quickly gauge their success and adjust efforts in order to maximize impact.
Competitive Analysis
Tracking the marketing ROI of competitors allows marketers to accurately understand how their organization is performing within their specific industry. For example, marketers tracking publicly available financial data can estimate the ROI of competitors and adjust baselines to reflect these estimates helping to keep efforts consistently competitive.
How to Calculate Marketing ROI Using a Formula
While there are several different ways to calculate marketing ROI, the core formula used to understand marketing impact at a high-level is relatively straightforward:
Marketing ROI = (Sales Growth – Marketing Cost) / Marketing Cost
It’s important to note, however, that this formula makes the assumption that all sales growth is tied to marketing efforts. In order to generate a more realistic view of marketing impact and ROI, marketers should account for organic sales.
Marketing ROI =(Sales Growth – Organic Sales Growth – Marketing Cost) / Marketing Cost
When leveraging marketing ROI formulas, it’s also important to understand the total ROI marketing efforts have generated. Be aware that definitions for an actionable “return” can vary based on the marketing team’s strategy and campaign efforts, as well as general overhead related to campaign implementation.
- Total Revenue: By looking at the total revenue generated from a particular campaign, marketers can gain a clear holistic overview of their efforts. Accounting for total revenue when measuring marketing ROI is ideal for strategic media planning, budget allocation and overall marketing impact.
- Gross Profit: Tying in gross profit helps marketers understand the total revenue marketing efforts generate in relation to the cost of production or delivery of goods and services. To do this, marketers should add the following to their marketing ROI formula: = (Total revenue – cost of goods to deliver a product).
- Net Profit: Diving deeper, marketers can calculate the impact of their marketing efforts toward net profit by adding the following to their formula: = (Gross profit – additional expenses).
It’s important to consistently define what profit/expenditures and overall ROI your team will account for across marketing ROI measurement efforts. Consider including the following:
- Overhead and internal expenses
- Agency fees
- Media buys
- Creative
Marketers can also calculate ROI through customer lifetime value (CLV), which sheds light on the value of each individual customer relationship with a brand. This formula helps assess long-term ROI across the consumer’s lifecycle. To do this, marketers can use the following formula:
Customer Lifetime Value = (Retention Rate)/ (1 + Discount Rate/ Retention Rate)
Branded
Some Google Ads users are hesitant to bid on branded terms because it’s unlikely that a searcher who converts after clicking a branded ad is a true “first touch.” Conversions have to be couched in the fact that those searching for your company name may very well have already visited the site. That doesn’t mean branded terms aren’t valuable in terms of ROI. Your Quality Score will be maxed out. Volume / competition probably aren’t high compared to top of funnel terms.
Top of funnel
These are your research-based terms. Since ROI will be lower here than in branded or bottom of funnel campaigns, you’re going to want to keep a close eye on what’s working and what isn’t. Flexibility is key here: if a top of funnel term is leading to conversions, then go for it. On the other hand, don’t just spend money to spend money: odds are, variations of the keywords you’re bidding on here exist that convert better for less. Fish those out of your search queries and watch ROI skyrocket.
Competitor
Bidding on competitor terms can be a disaster in terms of ROI. The terms are expensive. Your copy is probably irrelevant, comparatively speaking. There is, however, a hack that lets you improve (or in some cases, simply create) ROI while bidding on competitor terms. To maximize your return on competitor keywords, use RLSA. But instead of increasing bids, use your remarketing lists to ensure you’re only bidding on competitor terms when prospects who have visited your site are searching for them (you can do this by selecting “target and bid” instead of the default “bid only” option). This indicates that they’re shopping around: present an offer that cannot be refused and these oft useless campaigns can pay major dividends.
