For marketing, this means measuring what type of leads, conversions, or sales you make based on the effort, time, and expense you put in. In every marketing campaign, a strong ROI is key. Otherwise, you may be wasting your time and money.
Learning how to maximize your marketing investment is critical in today's world, where there are dozens of potential marketing channels to choose from. If you're marketing online, there's a good chance you're using many platforms and channels to boost your brand and garner leads and sales. Every business wants to know what is a good return on investment. We'll cover everything you need to know about marketing ROI.
What is Return on Marketing Investment (ROMI)?
So what is what is return on marketing investment? Marketing ROI is the practice of attributing profit and revenue growth to the impact of marketing initiatives. By calculating the return on marketing investment, organizations can measure the degree to which marketing efforts, either holistically or on a campaign basis, contribute to revenue growth. Typically, marketing ROI is used to justify marketing spending and budget allocation for ongoing and future campaigns and initiatives.
With ROMI, you can see how well your ads, SEO, emails, blog, and other marketing channels pay off. ROMI only takes marketing expenses into account, and it doesn't consider production costs, rent, and payroll.
For example, your company is making designer lamps and promoting them on Facebook. You also send emails. You will use the ROMI formula to see which channels are cost-effective and which are not. You'll see how much money each dollar invested makes. ROI is a broader term, and it measures the overall gain or loss incurred with respect to the investment made by a company. Meanwhile, ROMI refers to the profit made or loss incurred with respect to the investment made in the marketing campaigns only.
Why is Return on Marketing Investment Important?
There's a high level of importance of ROI in marketing. Marketing ROI illustrates how your marketing is performing and how it is impacting your business. This clear information can deliver huge competitive advantages. When MROI data shows you which marketing channels are most effective and most profitable, you can pivot your marketing spend to focus on those channels and reach more customers.
The ability to quickly and clearly determine the most effective marketing tactics and channels are particularly important for small and midsize businesses (SMBs), where budgets are more constrained, and value needs to be proven as fast as possible. Using data to measure MROI gives you a clear marker for analyzing campaign success, which allows your marketing team to defend your marketing spend to your leadership and justify further investments in marketing technology. This can be helpful for marketing teams at companies of all sizes, but especially at SMBs, where new technology investments can be a luxury.
How is Marketing ROI Used and Measured?
Some businesses struggle with measuring marketing ROI. This is usually due to disorganized marketing data, unclear links between customer activity and business outcomes, or tracking the wrong metrics. To get over these hurdles, you first need a strategy for MROI measurement.
The vital components of any marketing measurement strategy are:
- Set clear goals.
- Identify costs.
- Get the right technology.
The basic formula is MROI = (Marketing Value − Marketing Cost) / Marketing Cost.
This core formula applies the same way to every campaign on every possible channel. However, there are many more detailed and nuanced ways to calculate MROI. Be sure to pick the way that works best for your business, and consider using an ROI calculator to get started.
You might be wondering what is a good marketing ROI percentage? There's no way to truly answer the question. That's because it depends on the industry benchmarks, platform benchmarks, and many other factors. For example, the average Adwords conversion rate is 2.35%, the top 25th percentile of accounts is 5.31%and the top 10th percentile is 11.45%.
As you develop your strategy, keep in mind that MROI doesn't always have to be financial in nature. Once you've set up ways to track the financial value of your marketing activities, be sure to add softer metrics, such as social media likes and followers, to the equation.
Ultimately, calculating MROI is about determining the best way to consistently deliver the best engagement to your customers. These hard numbers will give you clear insights into the messaging and channels that connect best with your customers — giving you the data you need to personalize their journeys and cultivate long-term customer relationships.
Every business will likely disperse its marketing strategy into many channels. So how can you calculate the MROI for every unique channel to identify which ones are performing well and which ones are underperforming?
Measuring marketing ROI means calculating marketing performance on each and every channel. Here's a primer on how to measure MROI on key digital marketing channels.
Digital Advertising ROI
There are many different types of digital advertising, and measuring the MROI of all of them can give you a clear picture of the value of your marketing spend and help you focus on the right channels. Email and social media are two of the most important digital advertising channels, but display, native, search, and video are an essential part of almost any marketing strategy as well.
Here's an example of calculating digital video advertising MROI:
A local theme park makes a short video promoting its new electronic ticketing system, which is tied to a mobile app. The video is shared on a variety of digital advertising channels — including social media, display, and natively on the park's website — and it includes a tracking link that leads to a vacation-booking page. After the video ad stops running, the park can calculate digital advertising MROI by weighing the number of new vacations booked against the cost of producing the video and sharing it across its chosen digital channels.
Social Media ROI
Social media can be a very high-ROI channel for many businesses — but remember, it's not all about hard numbers. While social media can help you generate leads, gain followers, and garner website traffic, it's also about brand awareness and cultural impact.
Tracking key social media metrics such as likes, followers, and pageviews is essential because it helps you understand whether your messaging is hitting the mark or not, allowing you to pivot your strategy quickly. This is crucial for SMBs, as it shows whether it's better to keep things organic or invest in paid social media.
Here's an example of calculating paid social media MROI:
A fashion magazine is trying to attract more subscribers, so it starts offering a free trial. All of its social media posts promoting the trial include a tracking URL.
The magazine pays to boost its posts on social media for a week. In that time, it received many new visitors, a percentage of whom signed up for the free trial. After the trial, a smaller percentage become paid subscribers. The final number of paid subscribers would show the fashion magazine whether it was worth paying to promote its posts on social media. Going back and tracking where those subscribers came from, it would also show which social media channels led to the most valuable new leads.
Email Marketing ROI
Email marketing has a well-deserved reputation as a high-ROI marketing channel. In fact, email has an average ROI of 3,800%, which makes it just about the best marketing investment your company can make. This makes it an essential channel for almost any business and an especially important channel for SMBs.
Email marketing ROI is also fairly easy to measure. By tracking open rates and link clicks and following your readers' journeys across your website, you'll quickly get a clear picture of what works best for your email marketing strategy.
Here's an example of calculating email MROI:
A local grocery store sends a weekly email to its customers. One of its partners, a local cupcake shop, pays the store to place an ad in its email. Through the tracking URL in the email ad, the cupcake shop can see how many visitors visited its website and how many ordered cupcakes.
If the profit the cupcake shop received from these visitors was more than the shop spent on the email ad, it may want to keep advertising with the grocery store — or even reach out to other grocery stores to run similar ads.
Event Marketing ROI
Live events are an important part of B2B lead generation, but they're often a big marketing expense. As such, it's essential to measure your MROI clearly. When it comes to events, everything from advertising the event to paying presenters and vendors is part of your marketing spend, but the connections you can make with new customers are often well worth the cost.
Here's an example of calculating MROI for an event:
A small architecture firm holds an event to publicize its designs for office buildings and spends a fixed sum on inviting local business leaders and promoting the event through email, social media, and web campaigns. Other marketing expenses include renting the venue and paying food vendors.
At the event, attendees are encouraged to sign up for the firm's email list, follow the firm on social media, and, most importantly, start working with the firm to design a new office building. After the event, the firm measures the number of email leads generated, new social media followers gained, and new contracts initiated. If the value of these is greater than the value of the collected marketing expenses, the firm has generated positive MROI from their event.
Setting Marketing Budgets
A marketing budget documents how much your business plans to spend on marketing over a specific period, like a year, quarter, or month. When budgeting for marketing, consider all costs associated with marketing your business, such as paid ads, hiring costs, marketing tools, website maintenance expenses, and more.
Establish your sales cycle
When you create your marketing budget breakdown, you want to establish your sales funnel. Your sales funnel is a critical component of your marketing budget because it determines where you're going to spend your money. Your sales funnel is the process your audience goes through to become a paying customer.
A typical sales funnel will have four stages:
- Awareness: At this stage, your audience becomes aware that they have a problem and starts looking for solutions.
- Consideration: At the consideration stage, your audience starts to look at the options available to them.
- Decision: When a lead reaches the decision stage, they start to narrow their focus on companies that provide the best solution or product for their needs.
- Action: Once a lead reaches the action stage, they choose your business and become a customer.
Understanding your business's sales funnel helps you see where you may need a digital marketing strategy to help you keep more people from falling out of the funnel.
For example, let's say you notice that your business's funnel has a ton of people at the consideration stage, but very few make it to the decision stage. While some drop-off is natural, you notice that the decline is more significant than what you'd expect.
As a result, you may find that you need to budget more money for strategies that will help get leads from the consideration stage to the decision stage. Strategies like video marketing, pay-per-click (PPC) ads and social media ads may help you push those leads down the funnel.
So, to help you understand how much you need to budget for marketing, you need to understand your sales cycle.
Knowing your sales cycle will help you anticipate strategies you need to invest in, which will help you budget for your marketing plan wisely.
Know your expenses
If you want to know how to prepare a marketing budget, start by establishing your external costs. You need to know how much everything costs your company, so you know how much you can allocate for marketing. So, what are outside costs you need to consider?
- Operational costs (creating products, shipping them)
- Costs for employing staff
- Costs for running your business (electricity, water)
- And more
You must consider these costs when creating your marketing budget plan. Not only does it determine what services you can invest in, but it also helps you set a baseline for your return on investment (ROI).
So, for example, let's say it costs your business $10 to produce your product. You sell your product for $50. So, when you're choosing marketing methods for your business, you have an idea of how much you want to spend so you can still make a profit off your item.
This information will help guide you to strategies that allow you to get the best ROI for your business.
Determine your company's goals
Every guide on how to create a marketing budget will say that you must establish your business's goals — and it's true! You need to know what you want to achieve, so you can set a budget that allows you to achieve those goals. You can set goals that focus on:
- Earning more sales
- Increasing leads
- Earning more subscribers
- Increasing brand awareness
When you set your business's goals, make sure they're specific and smart. You don't want to set a goal like "increase sales." It won't give you a precise target to work towards and achieve.
Instead, set a goal like "Increase sales by 20% by the end of the year" This goal is easily measurable and gives your team something precise to achieve. It'll also give you a concrete reference point when budgeting for marketing because you know how much you want to increase sales by and the timeline for achieving that increase versus just knowing that you want to increase sales.
If you want to know how to prepare a marketing budget properly, start by adding your overall business goals so you can invest in the right marketing methods to help you reach your goals.
Understand your market
You need to know where you fit in your market to build an effective marketing budget plan. When you understand how you stack up against your competition, you can better establish which strategies you need to use to compete with them.
You'll want to do a competitor analysis to see how your competition performs online. You can even use competitor analysis tools to help you see where your competition currently succeeds online.
It can help you determine which strategies you'll need to budget to drive success.
You can use a competitor analysis tool like CompetitorSpyFX to analyze competitor campaigns and get ideas for your own campaigns or use social media monitoring tools to keep track of what people say about competitors on social.
Get an idea of what strategies you want to use
An essential component of preparing a 2022 marketing budget is choosing your strategies. You don't need to be 100% sure about the strategies you want to use, but you should have an idea of which strategies seem to be the best fit for your business. There are numerous digital marketing strategies you can use, including:
- Search engine optimization (SEO): SEO is the process of boosting your website's rankings in search results to help drive more relevant, organic traffic to your page.
- PPC advertising: PPC ads are paid advertisements that appear at the top of search results pages and on other web pages. These ads allow you to reach more leads that are ready to convert.
- Social media marketing: Social media marketing enables you to connect with your audience one-on-one and deliver informative content to them. This strategy allows you to build relationships with leads and nurture them into customers.
- Social media advertising: If you invest in social media advertising, you'll focus on creating compelling ad copy targeted at specific leads. These ads appear seamlessly in their newsfeed, allowing you to build brand recognition and earn more leads.
- Email marketing: Email marketing enables you to nurture leads towards conversion by sending them tailored content that fits their interests. You can send promotional emails, exclusive deals, abandoned cart reminders, and more.
- Content marketing: Content marketing enables you to drive more leads to your page by sharing valuable information with your audience. Whether it's blog posts or videos, you can share your knowledge with your audience and establish yourself as an authority in your field.
- Local SEO: With local SEO, you optimize for local keywords and claim your Google Business Profile listing to help drive more local traffic to your business. Below, you can see an example of a GBP listing!
You'll want to have an idea of which strategies you want to use for your business when creating a marketing budget. When you know which strategies you want to invest in, you can determine how they will fit into your marketing budget plan. That brings us to our next critical component of how to plan a marketing budget.
Research strategy prices
Whether you're going to run your campaigns on your own, hire a freelancer, or hire a digital marketing services company, you need to know how much it costs. Your marketing budget breakdown should focus on how much each strategy will cost your business. First, you must determine who you want to handle your campaign:
- In-house: If you decide to stick to your in-house team, the cost will come in the form of salaries and materials you need to execute your campaigns. You may still need to hire outside help or invest in tools that enable you to manage your campaigns.
- Freelancers: Freelancers are people who specialize in one type of strategy or dabble in a few of them. If you hire a freelancer, you'll typically pay by the hour or on a per-project basis. The prices may be higher if the freelancer is more experienced or uses software, which they include in their rate.
- Digital marketing company: If you hire a digital marketing company, you'll get everything you need, from tools to people. Unless you're doing a one-off project, you'll pay per month to keep a digital marketing company on retainer.
Typically, if you're busy running your business, you'll want to rely on a digital marketing company like Universal Creative Solutions. It allows you to reap the benefits of having a marketing plan and someone to manage your budget, while you worry about other aspects of your business.
By knowing these costs, you'll know how to prepare a marketing budget better, so you can use the strategies that will drive the best results for your business.
Challenges of Measuring Marketing ROI
One of the downsides of marketing ROI is that it is easy to only recognize the incremental profits in short-term sales and underestimate the long-term benefits that marketing brings to brand value.
This can be particularly challenging for executives who might be impatient to see a return. A CFO might just see marketing expenses walking out the door and not a corresponding build-up of cash flows and assets. As a result, CFOs and CMOs are often at odds. CFOs are under tremendous pressure to deliver quarterly earnings and may not be patient for the longer-term effects of marketing to take hold. You're asking them to believe in forwarding movement in a progression through a customer's purchase journey, and that can take a long time. But marketing does more for a company than generate profits in the short term; it also builds lasting value and drives future profits.
This is where the concept of customer lifetime value can be useful. By calculating how much one customer is worth in comparison with others, marketers can show a CFO (and other skeptics) the impact of marketing spending over the course of the company's ongoing relationship with that customer. Some companies also build in "proxy measurements," such as brand awareness, brand liking, and brand knowledge, that help demonstrate that marketing dollars are helping customers move along the decision journey even if they're not making purchases now.
The key is to remember that while marketing expenditures hit the P&L immediately, every dollar you spend today is building your brand as an asset for the future. So, ideally, your marketing program is not only affecting sales and profits this year but also strengthening your brand equity and customer relationships over time.
How to Improve Marketing ROI
While every business wants to increase marketing ROI, figuring out how to do so can be tricky. Here are ways to ensure you are improving your MROI:
Create an ROI Tracking Plan
If you're not tracking your marketing ROI, you won't know if you've successfully increased it. Creating a plan for tracking your ROI is crucial to improving it. Determine which digital marketing ROI metrics you need to track.
Some common metrics include sales, website traffic, and leads, but the right ones depend on your goals and the type of campaign you're running. You also need to make sure you have the right tools for tracking ROI. One of the best available tools for ROI tracking is Google Analytics.
To track ROI using Google Analytics, you'll need to set up tracking for the conversions you want to measure, whether that's sales, leads, or another conversion type.
Focus on metrics that matter
If you want to increase your marketing ROI, be careful when choosing what metrics to track. Ensure these metrics truly reflect progress toward your most important goals and are not just vanity metrics that look good but provide little value. The right metrics to track depend on the goals of your campaign.
Here are some return on marketing investment metrics to consider:
If your goal is to increase revenue or sales, you may want to track metrics such as:
- Conversion rate: The percentage of leads or site visitors that convert
- Cost per acquisition: How much it costs you to acquire a new customer
- Customer lifetime value: How much a customer is worth to your business over the entire length of time they're a customer
If your goal is to increase brand awareness, you may want to track metrics like:
- Direct traffic: The number of users who come to your website directly, such as by typing your website's URL into their address bar
- Referral traffic: The number of users who come to your site via links on other sites
- Social media mentions: The number of times users mention your brand, product, or service on social media
The digital marketing ROI metrics you track influence how you work toward your goals. So, measuring and managing return on marketing investment ensures you know how to improve ROI in digital marketing.
Use marketing automation technology
The marketing automation market is expected to be worth $6.4 billion by 2024. There's a good reason this market is growing so quickly — these tools can help marketers accomplish more with less and maximize ROI by making marketing processes more efficient and precise. Marketing automation tools can take care of repetitive tasks and analyze data to help you improve your campaigns.
For example, email automation tools can send emails to prospects at pre-determined time intervals or when they complete certain actions on your site. Since your team doesn't have to send these emails manually, these automation tools can save them significant amounts of time. Marketing automation can also help in numerous other areas, including content personalization, lead tracking, and audience segmentation.
Let Universal Creative Solutions Boost Your Marketing ROI
We believe that improving MROI begins with setting a better objective that is based on the customer journey. Setting higher quality goals will shape better metrics. Additionally, we focus on future potential rather than solely past performance. Schedule an appointment with our experts and let us help you achieve exceptional results through our marketing services and marketing consulting.