07 Sep Measuring Your Marketing Return on Investment
When you’re running a business, or in charge of budgets, you need to be sure that your marketing expenditure is either growing your brand awareness (or brand equity) or generating a quantifiable return on your investment. If it isn’t, you’re just throwing money away.
It’s vital to continually assess your marketing activity to make sure that it is targeting the right customer – through the right channel – at the right time – with the right offer.
If you get this right, you will generate leads and sales. But if you get any of these aspects wrong, your campaign will fail. My general rule of thumb is to track and measure everything, and then react quickly when something isn’t working so that I can utilise that spend somewhere better. It’s important to stay mindful of, and gather as much information as possible relating to, your target market’s needs, wants, desires, problems, challenges and activities.
Tracking your activity to see what’s working doesn’t have to be a complicated either. At a simple level, you can monitor the success of your channels by noting down:
- The marketing activity
- The channel
- The cost of the activity and channel
- The return (sales that occurred as a result)
This last point seems to trip many marketers up; we all know about ROI and have the term bandied around constantly, but it can seem like somewhat of a dark art to accurately measure it. I find that it all comes down to a percentage; if you’ve got a percentage, you can clearly compare channels and get a better feel for where you should be focusing your marketing spend for best results.
The formula I use to calculate return on investment (ROI) is:
(Marketing Return (MR) – Marketing Cost (MC))
Marketing Cost (MC)
Let’s look at a couple of examples… First, let’s consider Google Adwords as one of our marketing channels. If you invest $1200 for the month into Google Adwords (your MC) and those leads generate you $3,600 of business (your MR), then your return was 200%.
($3,600 – $1200) / 1200 = 200% ROI
Now let’s consider a different channel – an outdoor billboard with an 0800 number attached to it for lead channel recognition. In this case, you might pay $4,500 (your MC) for your billboard for a month of visibility. If, in a month, this generates you $5,600 of income (MR), this means that the billboard and 0800 number generated you a 24% return on investment.
Looking at your channels in this way levels the playing field and, the ROI enables a direct channel comparison. It’s clear here that Google Adwords is the better choice for direct return on investment and, once you have these numbers, you can consider additional (more intuitive) factors. For example, it could be argued that a billboard provides additional brand equity through repeated visibility so, if budget is not restrictive, both are a worthy investment.
You’ll be able to see channels and campaigns that aren’t working when you see a marketing cost that’s higher than the return – or a negative ROI percentage. Prioritise the channels that produce the highest return on investment, followed by those that bring the greatest win for brand equity.
The general rule of thumb, if your business turning over less than $5million a year, is that you should invest 7-8% of your gross revenue in marketing. The possibilities are endless for what you could do with that, so hence it pays to spend it wisely and, to do that, you have to keep an eye on your returns. If something’s not working for you, stop doing it. If it is, invest further; This way you keep marketing investment decisions simple.
If you need help with sales and marketing check out my other businesses: