Calculate marketing ROI

Ensuring a Return On Investment (ROI)

It’s a familiar story. Most businesses understand the importance of marketing but choosing where to market and how much to invest can be daunting.

How do you ensure a return on your investment (ROI)? How should you measure if a campaign is performing well or not? How do you know – with certainty – that your sales are a direct result of your marketing efforts?

These are questions that business owners have been grappling with for decades.

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” John Wanamaker, pioneer of marketing (1838-1922).

John Wanamaker is the American pioneer who is credited with creating the modern concept of a chain of department stores.

In many ways, marketing hasn’t changed since his days, almost a century ago. The challenges are still the same: who to target, where to spend your money, and how to track if your efforts are working (and worth the spend).

Metrics-focused marketing

The difference between now and the early 1900s however (and even the late 1900s) is that marketing has become much more focused on metrics.

• Wanamaker knew he was only achieving a 50% ROI – with the right data, he would have known which 50%, and been able to double down on those efforts.
• Even better, with deep and extensive data, we can personalise, customise and tailor our marketing messages.
• Your audiences want to feel like you’re speaking directly to them; like you understand who they are and what they need.

These ROI strategies will help you determine where to spend your money, how much of your budget to spend, and who you should be spending it on.

Why is it important to calculate marketing ROI?

We understand that your budget isn’t unlimited. That’s why you need a scientific system to determine where you’re getting the best return on your investment.

It takes the guesswork out of future business, marketing and sales decisions.

How to calculate simple ROI:

To calculate marketing ROI, take the sales growth from the business or product line that you marketed, subtract the marketing costs, and then divide by the marketing cost.

The basic formula for ROI is:

ROI = (Gain from Investment – Marketing Cost) / Cost of Investment

How to calculate campaign attributable ROI

This is where things get a little more complicated. A simple ROI is easy to do, but it assumes that your sales growth can be directly attributed to the marketing campaign.

To have a realistic and more accurate view of ROI, you need to track monthly comparisons. These will show you how your marketing spend is impacting sales growth.

• Let’s say you calculate your sales growth over a period of 12 months and there is an average of 6% sales growth per month over this period.
• This means that your marketing campaign needs to deliver an ROI over and above that average 6% for it to be effective.

The formula will now look like this:

ROI = (Sales Growth - Average Organic Sales Growth - Marketing Cost) / Cost of Investment

Ready to start measuring marketing ROI?

Here’s what you need to have in place to effectively track new business leads and allocate them to specific marketing efforts.

1. New business enquiries from incoming calls

• Ask ‘Where did you hear about us?’
• If you have multiple campaigns running, ask specific follow-up questions
• Capture the answers (in CRM –Customer Relationship Management –software or on a spreadsheet), and ensure you capture the person’s details, company name, time and date, as well as line of enquiry, so that you can link this back to sales.

2. Outbound sales and marketing activities

Record the time and cost for each salesperson to obtain a lead via:

• Cold calls
• Email marketing
• SMS marketing

3. Website visits

• Use a platform such as Google Analytics (which is free) to provide data and insights on where your traffic originates
• Ensure you have clear calls-to-action and easy contact tools to prompt your browsers to make contact – this could be live chat, enquiry forms, or ‘call me back’ notifications.

4. Online advertising

• Ensure any online marketing is trackable; for instance, if you are running banner advertising on third party websites, ensure you are using unique tracking URLs on each platform to differentiate your lead sources
• If you’re advertising through third parties, test that you can see sources of traffic driven to your website using Google Analytics within the first 24 hours of advertising before wasting budget on ads you can’t track.

5. Traditional advertising

Use unique identifiers in your marketing

• Unique email addresses
• Unique coupon codes
• Some companies even use unique telephone numbers to track incoming calls

6. Cross reference leads and sales

• Tracking marketing leads will do little good unless you are able to cross-reference them to sales made. This will show which lead sources have been most profitable, giving you an indicator for where to focus your efforts.
• Keep a record of your sales with customer relationship management (CRM) software or in Excel and be sure to list the ‘lead source’ as well as details of the sale (products/price/date).