In today’s fast-paced and ever-changing business world, marketing isn’t just an add-on; it is an essential catalyst for any organisation aiming to achieve sustainable growth.
However, marketing’s brilliance is not limited to catchy campaigns or creative copies. It is also about understanding intricate returns on investment. Therefore, companies must discover the secret science of turning marketing investments into tangible returns.
In this blog, we will delve into the concept of marketing ROI and explore its significance in assessing the success of marketing campaigns. We will also highlight the key benefits of adopting a data-driven marketing approach.
Without any further ado, let’s dive in and discover how you can make Marketing ROI data work for you in achieving your business objectives!
1. Marketing ROI: Definition and Benefits
Marketing ROI is a crucial metric that helps assess the return on investment derived from the money a company spends on marketing efforts. It helps gauge the success of marketing campaigns by comparing the money gained from the initiative to the money spent on them.
Marketing ROI enables organisations to measure their campaign’s success and make data-driven decisions about allocating the marketing budget effectively. As a result, businesses can enhance their strategies, unlock new opportunities, stay ahead of the competition, and achieve their growth objectives.
Let’s explore some of the key advantages of marketing ROI:
1.1 Benefits of Marketing ROI
The benefits of marketing ROI are substantial and impactful for businesses. Here are a few notable benefits:
- Allows Accurate Evaluation of Campaign Performance:
Marketing ROI provides a quantifiable measure of how well a marketing campaign has performed. By analysing the ROI of different promotional activities, businesses can identify which strategies generate the highest returns and which may need to be refined or discontinued. This evaluation not only helps in optimising the marketing mix but also identifying channels that are yielding most profits.
- Budget Allocation and Resource Optimisation:
With insights from Marketing ROI, businesses can make informed decisions about how to allocate their marketing budget and resources across various platforms, channels, and campaigns. By analysing the ROI through different channels or platforms, they can determine which ones deliver the best returns, adjust their investments and eliminate wasteful spending.
- Forecasting and Risk Assessment:
Marketing ROI data provides historical performance insights which can be utilised for forecasting future revenues and assessing the potential risks associated with the performance of marketing initiatives. By analysing past ROI, businesses can make more accurate predictions about the potential returns of future campaigns. Moreover, it also aids in risk assessment by highlighting areas where marketing efforts may not yield expected results.
- Continuous Optimisation of Marketing Strategy:
Marketing ROI analysis is an ongoing process that encourages a culture of continuous improvement. Businesses can iterate and fine-tune their marketing strategies by regularly measuring and analysing ROI to maximise effectiveness. This iterative approach allows companies to adapt to changing market conditions and customer preferences. As a result, the marketing efforts remain relevant and efficient.
- Perform SWOT Analysis to Gain a Competitive Edge:
Marketing ROI data, when combined with other business metrics like conversion rate and churn rate, facilitates a comprehensive marketing SWOT analysis. This enables businesses to identify their strengths and weaknesses in marketing, capitalise on emerging opportunities, and address potential threats, ultimately gaining a competitive edge in the market.
Summing up, marketing ROI is a powerful tool that enables businesses to drive growth and position themselves for long-term success in an ever-evolving marketplace.
2. How to Calculate Marketing ROI?
To calculate marketing ROI, there is one simple formula that you can use:
(number of leads x lead-to-customer rate x average sales price) – cost or ad spend)
________________________________________________________________________ x100
cost or ad spend
Let’s break down the formula and understand each element in detail.
Number of leads: The number of leads refers to the total number of potential customers who have expressed interest in your company’s products or services. These leads can be generated through various marketing channels, such as website sign-ups, email subscriptions, and social media inquiries.
Lead-to-customer rate: The lead-to-customer rate (also known as the conversion rate) is the percentage of leads that eventually become paying customers. It is calculated by dividing the number of converted customers by the total number of leads and multiplying by 100 to get the percentage.
Average sale price: The average sale price is the average value of your company’s product or service. It is calculated by adding the total revenue generated from sales and dividing it by the number of sales made during a specific period. This metric is helpful to calculate the average price if you provide discounts on the products or services.
Cost of Marketing: Your marketing cost is the total expenditure incurred during your marketing campaign. This includes factors such as your ad spend, compensation (salary/wages) for the time invested by team members, and expenses related to content production.
Let’s take a practical example:
You have 10,000 leads, and 50% of them become customers. On average, they spent $100. It costs you $6000 to market these leads. After applying these figures to the formula, it will look like this:
(10000 x 0.50 x 100) – 6000
__________________________x100 = 12400%
6000
In this case, your ROI would be 12400%.
Now that you understand how to calculate marketing ROI, let’s look at challenges you may face while gauging the same –
3. Challenges in Calculating Marketing ROI?
There are various challenges that a company might face while calculating the ROI of their campaign based on the industry and the size of the organisation. But a few are common to all. Let’s discuss them in detail.
3.1 Insufficient Availability and Inaccuracy of Data:
Let’s understand this with an example: a company runs marketing campaigns across various platforms, including social media, email, and search engines. The data from these campaigns is stored in separate tools, making it difficult to get a comprehensive view of the effectiveness of each campaign. Without proper data integration and tracking tools, the company might struggle to calculate its marketing efforts’ ROI accurately.
3.2 Intricacies in Simultaneously Tracking Multiple Metrics:
Company A launched a new marketing campaign to increase website traffic and social media engagement. They use metrics like website traffic, sessions per page, social media likes and share, etc. All these metrics provide valuable insights, but they might not align perfectly when calculating ROI. This makes it challenging to assess the overall performance of the campaigns.
3.3 Difficulty in Accurately Tracking the Customer Journey:
Consider an e-commerce company with customers who interact with their brand through various channels, such as social media, emails, and the company’s website. Tracking a customer’s lifecycle journey across these channels to determine which interactions led to a purchase can be difficult. Moreover, some interactions might be anonymous, making it harder to attribute them accurately to the ROI calculation.
3.4 Inability to Measure Intangible Benefits:
For instance, a company invests in content marketing to enhance brand awareness and develop customer relationships. While the company can track metrics like website traffic and social media engagement, quantifying the direct financial impact of increased brand awareness and word-of-mouth marketing can be difficult. These intangible benefits contribute to overall ROI but are challenging to measure in terms of monetary value.
3.5 Complexity of Adapting to Changing Consumer Behaviour:
If a retail business traditionally relies on in-store sales, the company decides to invest heavily in digital marketing due to a shift in consumer behavior towards online shopping. However, it can be tricky to predict how this changing behavior will impact their marketing ROI. Therefore, it is challenging to forecast the effectiveness of new marketing approaches.
3.6 Disruption Caused by Sudden External Challenges:
Let’s take the example of an airline company that launches a marketing campaign to promote international travel. But an unexpected global health crisis occurs, leading to travel restrictions and cancellations. The potential market is disrupted, rendering the initial ROI projections inaccurate. The external challenge of the health crisis significantly alters the conditions on which the ROI calculations were based, making them no longer valid.
To tackle the predictable challenges, brands can prepare a plan by engaging in proactive and strategic decision-making. Let’s see how a digital marketing agency can help your company devise a plan.
4. How can a Digital Marketing Agency help?
A digital marketing agency can help you create an agile digital marketing strategy by conducting scenario planning to anticipate potential challenges and their impacts. They are equipped with the latest technology, tools, and metrics to calculate your marketing ROI accurately. After setting clear goals, implementing robust tracking tools, and analysing data from various digital channels, they can determine the effectiveness of the marketing efforts.
Growth Ganik is a full-stack digital agency set that guides companies aiming to gauge their marketing ROI. Through audience segmentation, A/B testing, and predictive analytics, we will optimise campaigns, allocate budgets wisely, and enhance conversion rates, ultimately maximising ROI.
Schedule a 45-minute free consultation with our experts to get a customised solution that helps you achieve your marketing goals.
