Effective marketing is the gateway to commercial success. Some of the biggest questions companies and business owners have nowadays, in terms of marketing, have to do with return on investment (ROI) calculations.
These questions may include:
- “Are my campaigns working?”
- “To what extent?”
- “What is the profit I’m getting back for what I’m spending on marketing?”
- “How might I increase the knowledge and control of my marketing efforts and quantify their success?”
While it’s true that ROI is one of the most valuable calculations in the business world, we know it can seem daunting. There are no simple plug-in calculations, many sets of variables at play, and both short and long term affects.
So… What is ROI and How is it Calculated?
ROI (return on investment) is a measure of the profit earned per investment — arguably the most crucial metric for business. ROI is typically expressed as a percentage, to chart a company’s commercial profitability or to compare the productivity of different investments.
The ultimate goal here is to spend money on investments that pay off by generating income and bringing in revenue.
For example, many companies will create and track their own Facebook ads to increase engagement. If a company spends $200 on Facebook ads that lead to, for example, over $1500 generated in revenue, that marketing channel is extremely profitable.
Measuring Your Efforts
There are many diverse ways of calculating ROI and interpreting your own data for profitable usage.
These ten simple steps were created to help maximize your marketing efforts, increasing your working knowledge of ROI, and assist you in creating the best possible marketing plan for your business.
1. Basic ROI Calculation
To calculate ROI, subtract your total investment from your net profit or revenue. Divide the number by that total investment and multiply by 100 to get a percentage. The higher the percentage number, the better the ROI.
This equation can also be expressed as follows:
[ (Net Profit or Revenue — Investment) / Investment ] x 100 = ROI percentage.
ROI can also be expressed in ratio form. A successful marketing ratio (revenue to marketing cost) is 5:1, and 10:1 would be considered outstanding.
To maximize the usefulness of these formulas, it is crucial to know and understand exactly where your numbers are coming from and what they say about your business’s pre-existing marketing plan.
2. Set Specific Marketing Goals
Ask yourself what specific metrics matter most to your business. What numbers are most important to you, and why?
Net revenue? Gross revenue? Individual products?
Are you thinking long term or short term? Over how many weeks, months, or years are you looking to see a notable profit increase?
Setting specific goals for you and your business can help you create meticulous marketing plans right from the get go.
3. Know and Understand Exactly How Much You’re Spending on Marketing
Every business should have an individualized strategy to monitor expenses.
What contributes to your marketing spend? Are you hiring freelancers to create blog content? Paying for ads on different social media platforms?
Know that all of these expenditures contribute to your overall marketing budget. To maximize your knowledge and control over these numbers, track all expense both individually and together. This way, you can compare and contrast the effectiveness of marketing strategies while maintaining an overall perspective on your investments.
4. Test Out Different Marketing Channels
It is crucial for each individual business to recognize and determine the most profitable marketing channels based on their target audience. Do not hesitate to take channels on “test runs” to see what audiences they sway.
You don’t want to run out of funds too quickly by testing out every channel available to you, so be selective.
Remember that ROI is a long-term strategy. Making smart decisions during the short-term testing process will lead to greater success later on.
5. Try a Knowledge Commerce Platform
Choosing a Knowledge Commerce Platform (there are many of these being generated — Kajabi is a big one, as is Google Analytics) can help you feel more in control of the money you are spending versus bringing in.
These platforms lay the calculations out for you and assist you with data interpretation. This option is great for beginners, or for those daunted by the prospects of calculating ROI.
6. Comparing Strategies with Other Businesses
A quick visit to a competitor’s website, or to a website of a business you take as an example, will allow you to analyze other companies’s plans and strategies.
Where are other businesses getting their greatest engagements from? Do they have highly engaged with social media channels? Do they have a popular blog? A mailing list?
Learning more about other businesses will teach you much about your own. Navigating other companies’ online interfaces will give you perspective into what may or may not work for your company’s individual marketing plan.
7. Be Honest With Yourself
This is arguably the most important point of all. Remember that your company always wants to be earning a profit.
Don’t be afraid to constantly check in on yourself. Ask yourself what is working and what isn’t. Continue to track your numbers. Make detailed notes of your progress over month and year-long periods.
If a specific month has lower ratios or percentages, revisit your data to figure out why. Be aware of external variables that may influence your numbers.
8. Look Into Multi-Touch Attribution Models
How does a client arrive at your product? In marketing, attribution is the determination of a set of user actions (“touchpoints”) that guide a client to your business. These could include social media, word of mouth, webinars, and e-mail lists, to name a few.
Multi-touch models assign percentage values to every “touchpoint” to give each marketing channel appropriate credit for its contribution to the sales cycle.
Making use of these kinds of models can help ensure detailed accuracy when calculating ROI.
9. Be Patient!
Remember that calculating ROI takes time, effort, and patience. Know that weeks or months may pass before your data tells you anything of significant use.
Trust your distinctive business plan, set specific goals, and be honest with yourself about the work you are doing.
Take those crucial first steps. The assets will follow.
