As if marketing budgets weren't tight enough already, the economic downturn of 2020 is going to push marketers to prove their efforts are producing tangible results more than ever. And probably not just to keep your budget for next year... but to keep your job, or maybe the whole marketing department. How do you prove a return on investment in marketing?
To start, you'll need data. But what will you track? And what information do you have now if you're just starting out on producing a marketing ROI? This is important to know so that as companies evaluate who to give budget to next fiscal year, you'll have proof that the marketing team is worth every dime!
What is Marketing ROI?
Simply put... marketing return on investment (ROI) is a calculation that compares the cost of marketing to the revenue that was generated as a result of the marketing activity. You need to spend less than you make in order to continue running the marketing program. Seems pretty straightforward, right?
Not every marketing campaign is a winner. So if something isn't working, and you can see that in the numbers and either stop the activity or change what you're doing. Try setting goals for revenue growth that involves your work. Sales will likely be a part of the equation too. But by giving them more and qualified leads, they're likely to close more deals.
Be prepared to show the ROI of each different activity. This will help you decide what things to keep and how to shift funds within your marketing budget in the future. Categories of marketing activities might include:
- Inbound marketing/organic traffic
- Digital advertising (by platform, ie: Google, Bing, Facebook/Instagram, LinkedIn)
- Trade shows
- Radio or TV advertising
A "campaign" might include several of these things, and you can evaluate a campaign. But often you're going to want to know whether a particular type of marketing is worth continuing.
How to Calculate Marketing ROI
[((number of leads x lead-to-customer rate x average sales price) - cost or ad spend) ÷ cost or ad spend] x 100 = Marketing ROI (MROI)
Here's what each of those things means:
- Number of leads: How many leads you created as a result of a specific type of marketing.
- Lead to Customer Rate: How many of those leads converted into customers from a type of marketing, divided by the number of leads generated by that marketing.
- Average Sales Price of the product or service being promoted by that type of marketing.
- Cost: How much you spent on marketing to get those leads. This should include:
- Hourly wages of the staff that put in the work to get the work done.
- Agency or freelancer fees for inbound marketing, design, writing, ad setup and management, etc.
- Digital ad fees for pay per click, display, video, social ads.
- Video production.
- Radio or TV spots including any production fees.
- Trade show expenses including travel and meals for the staff, the booth, the print materials, etc.
Which Marketing Activities Have the Best ROI?
I'm sure you're not surprised when I say. "it depends." What does it depend on? Who you're targeting and how you're trying to deliver the message.
I often marvel at companies running radio ads on the pop stations in Houston for something that's very business-focused. Is that really where the business decision makers are at? And if they are (or were when we used to drive our cars) are they really paying attention? I'm sure there's few. But overall, I would need to see some significant return on the investment in radio ads for that activity to continue.
So... that's what I mean by it depends. The ROI on radio ads might be great if you're running an entertainment complex that would attract people from around the city. Not so great if you're a B2B company selling to specific people within an organization. The same is true for every other type of marketing.
Inbound marketing is a better option for many B2B companies, especially if there is a longer sales cycle. But not so awesome for consumer purchases that are impulse or short sales cycles. You might be interested in reading our blog:
See what I mean? Consider your audience and then consider where they will do their research (if research is necessary) and try to meet them there.
With that in mind, here is a rundown of the ROI on different types of marketing:
- Inbound marketing - What is the decision process like for your product or service? If it's more than a couple weeks including research and comparison shopping, you're likely to do very well with inbound marketing and answering a lot of questions in an upfront way so that you build trust and lead the visitor toward a purchase with thoughtful follow up. Do you have an opportunity to educate about the topic relate to your sale? What can you add to your website that would help visitors convert to leads? And what is your process for nurturing leads? If you're not sure, learn more about inbound marketing.
- Google or Bing PPC Ads - This is a good way to bring in leads who are ready to make a decision soon. But you have to be sure your ads are honed just right to get to the people who matter most. And you need to offer an easy way to convert into a lead when they arrive at your website.
- Facebook/Instagram Ads - These are better for people who aren't necessarily in a decision thought process, but could be convinced with some well timed and thoughtfully places ads. Expect a longer time to convert from lead to customer on these in most situations.
- Radio or TV Ads - Especially with radio ads, you need to be sure your product or service is widely available to the entire market area. It doesn't have to be B2C... but if you only offer services in a small area of the entire metropolitan market, please don't go this route. TV ads can be somewhat more honed in because of zones they offer, but honestly, who's watching TV ads these days? Also, and this is critical, never run a TV or radio ad without a way to track results. Use a coupon code, a special phone number with tracking information, a special offer, or some other way of knowing that they heard you on the radio or saw you on TV.
- Trade shows - This is, by far, is some of the most expensive marketing out there except maybe highly produced TV ads. If the trade show brings in leads that turn into more revenue than the cost – it's worth it. But the truth is, in a post COVID-19 world, we may not see too many of these for a while. Consider shifting these funds into inbound marketing where you can offer educational content, webinars, demos, etc. Or use digital ads to attract people who are looking for something that you sell.
Are There Marketing Activities With No ROI?
There are marketing-related activities that will be much harder to tie into ROI. Most often this is related to branding. You need a brand and you need to promote it – more heavily in the first few years as you establish your business. But it can't ever really go away. Sometimes being included in online directories or attending an event for your industry will simply show that you're still in business, even if it's not driving a lot of leads. Being seen is important, especially for those who are considering options.
Are there things you can do for "free" that should count into ROI?
Listings in Google Maps, Bing, Yelp and other industry-specific websites are usually free to add. Writing blogs, commenting on discussions on Linkedin, or other things that show you can speak the language of your potential customer is valuable. But it does require someone's time. Track that time into the overall ROI.
Marketing ROI Goals
It is different for everyone, but a 10x return on investment is not likely. Set realistic goals so that your C-suite isn't disappointed, and so that you don't drive yourself crazy. If you spent $100,000 over a year on marketing, what would you find reasonable as a return? I'd like to see 3 to 4 times the investment. Just remember, they don't all produce results at the same time, and you've got to give your sales team time to turn those qualified leads into customers for it to be measurable. As much as we all like instant gratification, that's not really the case when looking at marketing ROI.
If you're trying to figure out what to do that will get you the most ROI on the marketing budget you have, we can talk about that with you. Here's a good starting point: Schedule a free consultation with our team.
Originally published May 2014. Updated May 2020.