ROI Marketing: A Beginner’s Guide

What is marketing ROI?

Marketing ROI focuses on the return on investment of your marketing spend. Use this metric to determine whether individual ads or entire marketing campaigns have paid off, increasing the number of customers and boosting sales revenue.

For marketers at small businesses and large enterprises alike, there are several benefits to understanding the ROI meaning in marketing, including the following:

Proving efficiency in marketing spend

Knowing how to calculate marketing ROI gives you quantitative proof of how well or poorly each ad performs. It also gives you something to put in front of decision-makers and leaders who wonder what they're getting for their money.

Distributing your ad budget wisely

When you calculate return on investment at the campaign level, you can tell which strategies you should continue to pursue. For example, if you have a Facebook ad that's performing better than an Instagram ad, you might want to budget more of your marketing dollars to the one that worked best.

Comparing how your competing in the market

Track the return on investment of your competitors and compare it to your own. You can use public information and financial statements, if available, to find out if your marketing campaign has increased your footprint.

Holding yourself accountable

While telling a good story can help you engage new customers or improve customer relationships, it's all about the sales revenue numbers. The marketing return on investment calculation shown below can help you justify every advertising dollar spent.

What is ROI in marketing? Ultimately, it's the measure of your success or failure at responding proactively to your ad campaigns and any other digital marketing strategy. So, get ready to cut anything that doesn’t generate leads or interest that also improves profit and revenue growth.

How to calculate marketing ROI

How to measure marketing ROI : [((number of leads x lead-to-customer rate x average sales price) - cost or ad spend) ÷ cost or ad spend] x 100.

ROI formula marketing example:

A company spends $1,000 on creating and placing ads. They receive eight clicks and six orders as a result. They calculate they’ll make around $2,000 on each new customer.

Here's how to figure out its ROI: [((8 x 0.75 x $2,000) - $1,000) ÷ $1,000] x 100 = 1100%

This example emphasizes the importance of customer retention to improve your ROI.

To use the marketing ROI formula, collect the following information:

• Number of leads: Those interested in a product.
• Lead-to-customer rate: Percentage who buy a product.
• Average sales price: Cost of product minus discounts.
• Cost or ad spend: Cost to create and publish ads.

Looking at other elements besides revenue can give you a better idea of the true cost of marketing.

Additionally, the amount of traffic to your website and responses on social media are examples of how viewers might respond to your marketing efforts. Establishing a relationship with a customer could involve either of these steps.

It's important to understand what marketing strategies work for different products and services. What is the ROI meaning marketing professionals follow most closely? Keep reading for examples of how to calculate your return on investment for different marketing efforts.

What is a good marketing ROI?

Good results for ROI marketing start at a 5:1 ratio, and the very best marketing might net you up to 10:1. Meanwhile, ROIs below 2:1 haven’t netted you enough to continue. The cost of producing goods and delivering them to the public requires a higher ratio.

Exceptions to this rule include products with overhead costs of less than 50%. Products and services with low expenses can generate a profit at lower ratios. Consider industry-specific factors, including unique costs and margins.

For example, if you achieve high ROI marketing but don’t make as much as your competitors, there’s a lot of room for improvement.

Challenges of marketing ROI

Here are just a few challenges that can impact your marketing ROI.

Can be difficult to determine your marketing expenses

To achieve a high return on investment, you need to consider how to use your marketing. For example, product photography can garner interest and increase sales. However, spending too much on this one element can run you short in other areas.

On top of that, it's often hard to tell how much you're spending on marketing. Be sure to include all of the following elements:

• Time: How long did it take? The more time involved, the lower the marketing ROI.
• Production Costs: Include services, software costs, production and talent labor, and supplies, and all other costs to create the marketing campaign.
• Promotional Costs: This is the cost of promoting your product.
• Page Analytics: When you use tracking URLs, it's easy to tell whether Facebook ad content drives traffic to a landing page.
• Non-Financial Returns: Consider estimating the value of responses on social media and other digital assets that help build brand awareness.

Over-reliance on short-term numbers

A good business plan includes long-term and short-term benefits for marketing expenses. Focus on long-term rewards such as lead generation and brand awareness. Avoid the mistakes made by many rookie marketers.

Instead of addressing the immediate impact on your sales, consider all the things that can help drive lasting customer loyalty, which take months to build and years to cement. In short, you should align your metrics with the long-term goals of each campaign or program.

Measurements are too simple

Are you accounting for seasonal trends and other predictable changes in the market? In order to understand the true ROI of your marketing efforts, create a consistent sales margin to compare your results with.

For example, swimwear sales will largely depend on current weather conditions, while sales of a toy truck may remain consistent throughout the year with spikes during the holidays season. What external, consistent events are influencing your sales or lack thereof?

How to improve your marketing ROI

To increase your content marketing ROI:

• Use PPC advertising
• Be wary of influencer marketing
• Don't forget about email marketing

Use PPC advertising

PPC stands for pay-per-click and describes one of the most ubiquitous ways to purchase or sell advertising online. If you place an ad on Facebook, for example, and someone clicks on it, you pay for the click whether it leads to an immediate purchase or not.

Advertisers often experience high ROIs on well-managed PPC campaigns. On the other hand, poorly executed campaigns can drain your advertising budget without resulting in increased sales or lead generation.

There are numerous tools that can help you track the performance of ads. Let's take a closer look at factors that influence the results you get with digital marketing ROI and influencer marketing ROI. It’s also worth investing in tools that make it easy to monitor live PPC campaigns.

Be wary of influencer marketing

You don't need to pay hundreds of thousands of dollars to a Kardashian to successfully implement influencer marketing. Influencers can cost a lot of money and you'll need to think strategically in order to use it to reach a solid return on investment.

If you can't obtain the right influencer at the right place for your product, you may achieve better results through paid search or content creation. You could also use micro influencers that your target audience admires.

Micro influencers have fewer followers but carry a lot of weight in markets you wish to penetrate or expand. They are also a lot cheaper than sports stars or famous actors.

Don’t forget about email marketing

Email marketing is a cost-effective way to procure and keep customers. You can use emails to send promotions and discounts for products with flagging sales.

By capturing the email of your current and future customers, you can increase the lifetime value of those who buy your products and services.

Emailing can produce a high ROI if you can make your message appealing to your target audience. Otherwise, all your marketing emails could end up in the spam folder while your bottom line remains flat.

It’s not usually all that important to track production time for specific links within your email call to action. However, you can add a tracking URL that provides direct confirmation that the reader has clicked through to your product landing page.

Email marketing can help you boost your ROI

Now you understand measuring marketing ROI for ads, campaigns and programs. By closely comparing the results of different marketing efforts, you can tailor future ads to appeal to your customer base.

Of all the approaches discussed, email marketing is one of the most cost-effective for small businesses. Mailchimp makes email marketing more productive.

In addition, it’s scalable, so you can use the platform to send 100 emails at the beginning of your marketing campaign, or to thousands of customers when your brand begins to thrive.