Determining ROI can be a difficult job for any area of business, but marketing campaigns take that challenge to the next level! How do you know if you're spending your marketing dollars in the right places and if you're getting your money's worth? Let's take a look at ROI!
First things first, what is "ROI"?
"ROI" stands for "Return On Investment" or in other words, the amount of value you received in exchange for your marketing dollars spent. ROI is calculated as a percentage using the following formula:
The resulting percentage will reflect the return on your money spent. If your ROI percentage is over 100% (which we hope it is!), then you are gaining more value per dollar than you are spending.
100% is the break-even point, and anything less than that would suggest that you aren't getting your money's worth.
Okay, I get that, but why is ROI so important?
The answer is simple - nobody likes to waste their money! That statement is especially true when it comes to your precious marketing budget.
If you can report a positive ROI to your manager/client, you will have much more leverage when requesting additional funds for future campaigns (which no marketer has ever complained about).
Measuring ROI is also crucial to optimizing future campaigns and staying ahead of the competition.
That makes sense...how can I measure ROI?
You can measure marketing ROI using the formula below:
While this formula might look simple, it's just the tip of the iceberg. The second part of the equation, "cost of the marketing investment," is pretty straightforward.
The first part of the formula, "incremental financial value gained," is where things get tricky. The financial value you gain comes in a variety of forms.
Here's a quick analogy for you. Let's say you are running a lemonade stand. You spend $100 on your supplies, and throughout the day you sell $50 worth the lemonade.
Punching these numbers into your calculator (assuming you're a kid in this scenario), you calculate a disappointing 50% ROI.
Discouraged, you forgot to add in the value of the people who saw your lemonade stand but didn't make a purchase. This "brand awareness" will likely lead to future sales and should be included in your ROI.
Now let's say you make a Facebook page for your lemonade stand and run a $20 targeted ad campaign, and see your sales double over the next week.
How do you know what percentage of the sales you can attribute to your Facebook campaign, word of mouth, and any other form of advertising? This scenario represents what we like to call the "invisible" ROI.
What do you mean by "invisible" ROI?
The invisible ROI is the financial value gained by your marketing campaigns other than sales revenue. This value can take the form of brand awareness, lead acquisition, and moving people down the buyer's journey or sales funnel.
These types of value can be difficult to quantify and communicate to other members of your organization. You can report a "20 percent increase in brand awareness", but what exactly does that mean to the head of your finance department or one of your top clients?
That's a good question, do you have any tips for calculating this "invisible" ROI?
1) Make a list of every benefit you gain from each marketing campaign
This first step is crucial for calculating a satisfactory ROI. Think of every positive impact your campaign has on your customers and brand.
Some great examples are brand awareness, new social media followers, brand engagement, lead acquisition, and increased brand loyalty. The more value metrics you can think of, the higher your ROI so be creative!
2) Determine a set value for each of the metrics you just added to your list
Ask yourself how much a new Facebook follower is worth to your company. Or better yet, ask other decision-makers in your company to help you decide on a value that the whole company agrees on.
Once you have a set value for each of these metrics, you're on the home stretch to determining your marketing ROI!
3) Measure your results!
Track the results of your campaigns to the best of your ability for each of the metrics on your list.
There are many tools out there to help you with this like Hootsuite, Facebook Ads Manager, and Sprout Social.
Once you have the results from the end of your campaign, add them all together and calculate your ROI!
4) Use your ROI to optimize future campaigns
You might be impressed with your new not-so-invisible ROI, but there is always room for improvement. Play around with different ad campaign variables to see where various ROI metrics can be improved.
Pro Tip: You don't need to wait until your entire ad budget is spent to measure and maximize your ROI. "A/B" testing different variables is an excellent way to optimize campaigns early in your ad spend, ensuring that your remaining campaign budget is performing at its best!
ROI can be a tricky metric to tackle and can seem invisible sometimes, but hopefully, we helped shine some light on this critical growth metric. What methods do you use to calculate your marketing ROI?
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