The Importance Of Measuring Your Marketing ROI – And How To Do It Right

Maximizing the success of any marketing campaign requires measuring its return on investment (ROI). Businesses must assess their ROI to understand which strategies and tactics are yielding results and which need improvement. Measuring marketing ROI is key for attaining maximum value from investments, so let’s explore why it’s important, as well as how to do it correctly.

What is ROI in Marketing?

ROI (Return on Investment) and MROI (Marketing Return on Investment) are acronyms used to evaluate the success of a marketing campaign.

ROI measures the ratio of revenue earned from that campaign to its total cost, while MROI shows how much profit has been made in relation to each dollar spent on promotions, campaigns, and other efforts; allowing you to see how profitable your marketing endeavors are.

How Do Companies Use It?

Calculating marketing ROI is a crucial step for businesses to gauge the success of their campaigns. By comparing the revenue generated from a campaign with its associated costs, companies can gain valuable insight into how effective their marketing has been and make informed decisions to optimize future efforts.

To calculate ROI, subtract the cost of the campaign from its associated revenue, then divide that result by the cost. For example, if a company spends $10,000 on a campaign resulting in $30,000 in revenue – an ROI of 2 – it means they earned two dollars for every dollar invested.

In short – to find your return on investment (ROI) from marketing efforts you need to compare how much revenue was made relative to what was spent. Companies use this metric to determine which campaigns are effective and which ones need improvement, justifying their marketing budgets and allocating resources accordingly.

We will discuss this further later.

How is Marketing ROI Used by Companies?

ROI Calculation provides a clear indication of the returns on investment from marketing campaigns and initiatives. It allows companies to justify their spending, allocate budgets more efficiently, measure success accurately, and compare themselves with competitors.

Justify Marketing Spend

Accurately calculating ROI empowers companies to properly assess and validate the return on their marketing investment. This facilitates informed decisions about how much budget should be allocated to each channel. By discerning the ROI of every marketing action, organizations can recognize which channels are yielding superior returns and adjust budgets accordingly. 

Distribute Marketing Budgets

ROI provides companies with the ability to allocate their marketing resources more judiciously. By utilizing this metric, they can contrast different types of campaigns and better understand where to increase investments or cut back on expenses for maximum return. This way, firms can optimize ROI by channeling additional funds into a program that yields higher returns and reducing spending on those producing lower outcomes. 

Measure Campaign Success and Establish Baselines

By tracking ROI, companies can gauge the efficacy of their campaigns and create benchmarks for future endeavors. Progress can be monitored over time, allowing comparison between different initiatives to identify trends or strategies that yield superior results as well as those which underperform.

Competitive Analysis

ROI is an invaluable tool for competitive analysis. Companies can measure their own marketing performance against that of their competitors, allowing them to identify areas where they are outperforming and those in which they are lagging behind. With this insight, companies can adjust their strategies accordingly to ensure optimal results. 

How Do You Calculate / Measure Marketing ROI?

Having familiarized yourself with the concept of marketing return on investment (ROI), your next step is to master its calculation.

The basic formula for calculating ROI is (Sales Growth – Marketing Cost) / Marketing Cost, which can be expressed as:

Marketing ROI = (Sales Growth – Marketing Expenses) / Marketing Expenses.

Here, Sales Growth is the increase in sales resulting from a company’s marketing activities, including revenue from new customers and increased orders from existing customers.

Meanwhile, Marketing Cost refers to all the marketing dollars spent associated with activities such as advertising, promotions, and public relations.

This equation is useful for measuring the overall efficiency of a company’s marketing efforts; however, it does not provide a complete picture of its ROI.

To get an accurate assessment, take into account organic sales growth—that is, any increase in sales that can be attributed to factors outside of the company’s control (e.g., market trends or competitor actions). The formula should then be adjusted accordingly.

(Sales Growth – Organic Sales Growth – Marketing Expenses) / Marketing Expenses= Marketing ROI

By adding organic sales growth to the equation, it is possible to get a more accurate measure of the actual impact that a company’s marketing efforts have had on its overall performance.

It should also be noted that this formula does not take into account customer lifetime value (CLV), which is an important metric for evaluating the long-term success of any given marketing strategy. CLV can be calculated using the following formula:

Customer Lifetime Value (CLV) is calculated by dividing Retention Rate by (1 + Discount Rate/Retention Rate).

Retention rate refers to the percentage of customers who remain loyal to a company over time, while discount rate is the rate of return that a business expects from its investments.

Taking into account customer lifetime value (CLV) helps companies better measure long–term profitability and effectiveness of their marketing efforts. For example, let’s say you’re a company that sells tumblers.

In the first month, you spend $1000 on marketing and generate $2000 in sales – using the basic formula from above, your ROI would be calculated as follows:

By calculating the return on investment (ROI) of your marketing campaign, you can easily measure its success. The formula is simple: (Sales Growth – Marketing Cost) / Marketing Cost = 100%, a highly impressive return.

For example, if sales growth was $2,000 and the total cost for marketing was $1,000 – ($2000 – $1000) / $1000 = 1 (ROI of 100%).

Now let’s imagine that the following month you spend an additional $500 on marketing and generate another $1500 in sales.

To get a more accurate measure of your ROI, taking into account any organic growth factors, use the following calculation: (Sales Growth – Organic Sales Growth – Marketing Cost) / Marketing Cost = Marketing ROI.

For example, if you initially invested $1500, but after subtracting the cost of materials and ads ($200 + $500), your ROI is calculated as 1.6 (or 160%).

This demonstrates how taking into account organic sales growth shows a much higher return on investment than originally expected.

What Are the Challenges of Measuring Marketing ROI?

Calculating marketing ROI can be difficult for many companies, as it necessitates the meticulous tracking and assessment of statistics. A study found that only 40% of B2C marketers are satisfied with their ability to measure the return on investment from their content marketing activities. Possible explanations may include:

1. Difficulty in assigning attribution: It can be challenging to determine which specific marketing effort or channel directly led to a particular outcome. There are typically multiple touchpoints involved in a customer’s decision to make a purchase or take a particular action, and it can be difficult to isolate the impact of any one of them.
2. Timeframe of measurement: Measuring marketing ROI often requires a longer-term view since it takes time for the impact of marketing efforts to manifest in sales or other outcomes. This can make it difficult to tie specific marketing initiatives to short-term results.
3. Lack of data or incomplete data: it also requires access to accurate and complete data on customer behavior, marketing efforts, and sales outcomes. However, data may not always be available or may be incomplete, making it challenging to assess the effectiveness of specific marketing initiatives.
4. Inaccurate or incomplete metrics: Even when data is available, the metrics used to measure marketing ROI may not be accurate or complete. For example, some metrics may not take into account external factors that may be driving sales, such as changes in the economy or competition.
5. Difficulty in quantifying non-financial benefits: Some marketing initiatives may have non-financial benefits, such as improved brand awareness or customer loyalty, that are difficult to quantify in terms of ROI. This can make it challenging to assess the overall impact of marketing efforts on the business.

Tips for Improving Marketing ROI

Having calculated your most recent MROI and received a negative result? Don’t despair! Here are some top tips to help you boost that marketing ROI…

• Focus on effective marketing strategies: It’s important to identify which strategies are working for your business and focus on them. Experiment with different tactics, measure the results, and adapt accordingly.
• Set Key Performance Indicators (KPIs): KPIs are important metrics to measure the success of your marketing efforts. Identify the most important KPIs for your business and track them regularly.
• Invest in content marketing efforts: Content marketing is a powerful way to attract and engage your target audience. Create valuable and relevant content that addresses your audience’s pain points and interests.
• Build an email list: Email marketing is one of the most effective marketing channels. Build a targeted email list and segment it based on interests, demographics, etc. This will help you deliver more relevant content to your subscribers.
• Optimize your email marketing strategy: Improve your email marketing ROI by optimizing your email marketing strategy. A/B test subject lines, call-to-action buttons, and email copy. Analyze your email campaign results and make changes accordingly. Email marketing is one of the most cost-effective strategies for businesses. It has an average return on investment (ROI) of 3,800%, making it a wise investment for any company.
• Expand your distribution channels: Identify new channels to distribute your content and products/services. Social media posting, paid ads, and affiliate marketing are just a few examples.
• Measure conversion rates: Measure the conversion rates of your landing pages, email campaigns, and other marketing efforts. Optimize your conversion funnel to increase conversions and improve your marketing ROI.
• Make strategic decisions: Make data-driven strategic decisions about where to allocate your marketing budget. Cut spending on campaigns that are delivering negative ROI and invest in those that are performing well.
• Involve your marketing team: Involve your marketing team in the decision-making process. Encourage collaboration, brainstorming, and idea sharing to come up with innovative marketing ideas.
• Continuously monitor and analyze: Continuously monitor and analyze your marketing efforts to identify opportunities for improvement. Regularly review your KPIs and adjust your marketing strategy accordingly.

Bottom Line

Evaluating marketing ROI is essential for businesses to gauge the success of their campaigns, optimize their strategies, validate advertising budgets, and direct resources toward the most lucrative channels.

By working out marketing ROI, companies can create benchmarks for upcoming projects, measure campaign performance and compare themselves to industry rivals. Statistics show that marketers who calculate their Return on Investment (ROI) are 1.6 times more likely to be granted larger budgets for their marketing operations when compared to those who do not.

To accurately measure your marketing ROI and make informed decisions about your strategies and budget allocation, use relevant KPIs, calculate organic sales growth, and continuously monitor and analyze results.