One of the most common struggles marketers face is communicating the value of their efforts. How many times have you heard “But what am I getting out of this?” from your boss? Attaching a return on investment (ROI) to digital marketing is often challenging, but a good way to communicate value to more dollar-minded bosses.
What is Marketing ROI?
Marketing return on investment (ROI) are profits and revenue growth attributed to marketing initiatives.
How to Calculate Marketing ROI
If you need a tangible number to report on, the simplest way to calculate ROI is by subtracting the marketing costs from your sales growth, and then dividing that number by marketing cost. Like so:
While this is a good starting point, it’s not necessarily the most accurate. This formula assumes that all sales growth is a direct result of the marketing campaigns, which may not be true.
How to Calculate a Campaign Attributable ROI
If you want a more precise number, Investopeida.com recommends using a 12-month campaign lead up to calculate marketing ROI. Begin by measuring your ROI before the campaign so you have a clear starting base.
Using a 12-month campaign lead-up, you can calculate the existing sales trend to then remove from your later equations. For example, let’s say you find that your average each month is about a 4% growth from sales and current marketing efforts alone. You can then remove that 4% from your equation later when you measure this new campaign’s success.
Webinar: 3 Reasons to Use Digital Marketing
The formulas above, while useful for tracking marketing activity, are a rather reductive way of looking at marketing success. Depending on the length of your sales cycle, you may not see an immediate sale solely from marketing. You may also use marketing in other ways with the end result not being a direct sale – for example, a non-profit looking to increase volunteers wouldn’t have a dollar amount to attach to their efforts.
Often times, you may want to measure marketing ROI by number of conversions or conversion percentage. A conversion is the number of people that took a desired action – this could be filling out a form, opening an email, watching a video, etc. A conversion percentage is the percentage of conversions compared to number of impressions – for example, how many people actually clicked on an ad vs. the number who just saw it.
How to Know if an ROI is Good or Bad
When looking at marketing ROI, it’s important to keep in mind that success more often than not is driven by whether or not you’ve reached your goals. Generally speaking, an average marketing ROI is a 5:1 ratio, with a 10:1 ratio being excellent and anything below a 2:1 being poor. These are broad-strokes numbers, but useful benchmarks for communicating value.
Want even more tips for calculating ROI? Don’t miss our webinar on October 9, 2019: 3 Reasons to Use Digital Marketing.
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3 Reasons to Use Digital Marketing – Webinar
Join us to learn 3 reasons why Digital Marketing is becoming the norm. There are many tactics to consider, and they all work together to enhance your digital footprint and keep your company on the map (literally). In this webinar we will look at:
- How Digital Marketing varies from “Traditional” Marketing
- The main components of Digital Marketing
- How to measure for success
Need a new digital marketing or web design plan? We are a Minneapolis SEO, digital marketing, social media marketing, web design and HubSpot inbound marketing agency. Stop on by and get started – and while you’re here, pick up a free honey stick (yes, we love our bee-related theme).