What is Marketing ROI and Why is it Important?
Businesses spend millions of pounds marketing to consumers. UK digital marketing spend is expected to reach record highs this year!!
But, though marketing money is flying out the door, 40% of businesses say their top marketing challenge is providing a marketing ROI. And without an ROI, businesses cannot determine if their marketing budget are well spent.
Do you know if your marketing is actually working? Read on to find out what marketing ROI is and how you can use it to figure out if you are spending your marketing budget wisely.
What is marketing ROI?
Marketing ROI is the return on your investment from your marketing strategies. It measures the money received minus the initial investment and is used as a barometer for how well a marketing tactic performs. Use marketing ROI to determine the success of your marketing efforts as it relates to your overall goals whether driving sales, gaining leads, increasing engagement, or any other growth-driven marketing tactic.
The importance of marketing ROI
Measuring marketing ROI is essential, as it provides insights into the effectiveness of your marketing. It defines (with real numbers) the success of each campaign and empowers you with data to help you steer your marketing campaigns in a forward direction. Knowing your marketing ROI also places accountability on you to drive the company toward growth and not waste any even a penny of budget.
If you know your marketing numbers, it will also help you make key marketing decisions like determining how much marketing budget to allocate to each strategy. Calculating this blindly will set you up for failure. Tracking your marketing ROI shows you which strategies are working, and this information can inform your marketing budget allocation so you can re-invest in the tactics that are bringing you a return and pull back on the weaker strategies.
How to calculate your marketing ROI
Below we’ve outlined a simple ROI calculation that compares your revenue generated with your marketing spend. Note that your ROI calculations may differ depending on what you are calculating and which factors are involved in your marketing campaigns.
Marketing ROI (%) = [(Revenue return – Marketing spend) / Marketing spend] * 100
As an example, let’s say you spent £5,000 on Facebook ads and generated £10,000 in revenue from those ads. The calculation would look like this:
Marketing ROI (%) = [(£10,000 – £5,000) / £5,000] * 100
Marketing ROI (%) = 100%
With this campaign, you received a 100% return on your investment.
A negative return would result in a negative percentage. For example, let’s say you spent that same £5,000 on Facebook ads but you only generated £2,500 in revenue. The calculation would look like this:
Marketing ROI (%) = [(£2,500 – £5,000) / £2,500] * 100
Marketing ROI (%) = -100%
In this case, your marketing ROI would be negative, which indicates this may not be an ideal marketing strategy. Or, you may need to re-work ad creative or the ad parameters until you get a positive percentage.
TIP: Use percentages instead of simply subtracting the marketing spend from the revenue generated. This way you can easily compare the returns of different strategies, even if the numbers differ.
Note that marketing ROI should also include an increase in engagement, brand awareness, and customer satisfaction. True marketing ROI looks beyond just revenue numbers and considers long-term benefits as well. Identify the metrics you will measure before you execute each marketing strategy. This way, when you launch your tactics, you will have an idea of what constitutes a positive return, as it may be different for each company.