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Why You Should Always Have a Measurable ROI

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1. What is Marketing ROI?

As business managers, we find ourselves trying a myriad of different approaches in our efforts to reach goals and improve the bottom-line. Some ideas work and some don’t, but how can you be sure which strategy was the winning ticket that led to scaling the business and growth? Marketing Return On Investment (ROI for short) is a simple calculation that determines what value your business earned in respect to an amount invested into marketing efforts, and is one of the most important metrics to track when determining which strategies to pursue.


2. How do You Calculate Marketing ROI? 

Typically measured as a percentage, return on investment for marketing efforts is a number that is found by taking the current value of a strategy you invested in, subtracting the cost to acquire or implement it, and then dividing the outcome by the cost of acquisition/implementation of the amount you invested. In essence, the formula shows how profitable your efforts are. Business owners can technically determine the ROI of any expense they spend on their business! Sounds easy, right? It is. ROI is a relatively simple formula to calculate, and essentially you’re looking at the value of an asset that either went up or down in value since you acquired it. The thing about marketing efforts is that they aren’t traditional assets – they’re actions you take and develop over time to achieve specific growth goals, and you can’t just sell them when you feel you’re done with them. Marketing ROI will be realized when you determine which investments into your growth strategy are working the best and getting you closer to hitting – and passing – your desired milestones. You should be keeping track of your marketing ROI to realize which strategies are working, whether it’s creating a new website, acquiring new leads, or the implementation of an email campaign.


3. What Are The Best Ways to Measure Marketing ROI?  

Understanding the profitability of your actions is paramount to knowing your marketing ROI. The most successful businesses are constantly measuring the return of multiple marketing strategies and then comparing them to each other to learn which avenue helps them achieve their goals. Making the calculations necessary to measure your businesses marketing ROI will take time to get down, but once you do you’ll find it’s pretty simple! Fortunately, some of the best marketing softwares have simple, built-in tools like the ones listed below that can help you crunch the numbers quickly and start making sense of the efficiency of your marketing budget:
Hubspot’s Ad Spend ROI Calculator
HootSuite’s Social Media ROI Calculator 
Emailmarketingroi.com’s ROI Calculator
If some marketing efforts are outsourced to a digital marketing agency, businesses will want to be sure the agency provides periodic reports on the progress of their strategies and campaigns. Having a transparent dialoge between strategy teams and implementation teams in the digital marketing agency are critical to understanding marketing ROI.


4. What is a Good Marketing ROI?

How can you know if your marketing strategy is performing well if you don’t know what a good return is? The industry seems to have settled on a ratio of 5:1, or 5 dollars earned to every 1 dollar invested, as a desirable return. With a 5:1 ROI you’re probably doing a great job marketing your business. Any return under 2:1 is considered to be too low and ultimately unprofitable. The operating and production costs involved in the other half of the cost of goods sold (COGS) will most likely eat into your profit, and therefore leaving you with a breakeven operation. What it often comes down to is your businesses’ cost structure. How much it costs to make a sale in say, commercial construction, is much different than in an ecommerce business selling t-shirts, so expectations should vary depending on your industry. The best bet is to have a realistic goal you can strive to achieve while you work up to a return of 5:1, and make a timeline with specific, measurable milestones along the way. Too often businesses want to get maximum return on their marketing efforts right away, only to scrap the whole operation when their goals aren’t crushed in a single quarter. There are many paths to success in marketing, and they do not always begin with early, growth.


5. What do Marketing Costs Include?

Marketing costs will vary from business to business and often look very different. Everything from pay-per-click ad spend to informational pamphlets and beyond are marketing costs, and they all fall under a few main categories:

Content Creation and Distribution Costs
Search Engine Optimization (SEO)
Website Development
Company Blog

Digital Advertising Costs
Pay-Per-Click Advertising
Display Ad Costs

Owned Media Costs
Email campaigns
Social Media
Platform channels (YouTube)

Marketing Agency Management Fees


6. How Much Should You Budget?

Budgeting for marketing plans is essential to getting clear results of strategies return on investment. Depending on the growth stage that a business is in, a businesses growth goals, and the size of a business, the overall marketing budget should fluctuate to reflect for the current objective. When trying to make a big splash and grow a business quickly, some businesses allocate anywhere from 15-30% of their revenue on marketing expenses, leading into an ‘all-in’ strategy. Whereas businesses that aim to maintain an equilibrium position in the marketplace will typically budget 3-12% of revenues on marketing. Most other business who want achieve moderate growth bordering on aggressive will allocate anywhere from 10-20% of their revenue toward marketing strategy, and these days a majority of this is in digital marketing. Ultimately, you should be able to answer the questions a) What was spent? and b) What did it achieve for your business. This will mean analyzing results from various marketing strategies and redistributing budget to the efforts that work at that time. With an ever-changing consumer landscape, business managers shoulds become comfortable with trying new strategies and tactics to earn attention and drive growth. 


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For more information on how to develop a robust marketing strategy, increase marketing ROI, and grow and scale your business, be sure to read some of the other blogs we offer, and subscribe to our mailing list to get the latest details on webinars and best practices.


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