ROI: What is it and how to calculate it.
What metrics are you using to measure marketing performance? Are you tracking return on investment (ROI)? Marketing is a revenue-generating function, so it’s critical to understand how well it’s contributing, and on a more granular level, which tactics are not working.
This may be obvious to you, but many of the companies we speak with don’t track ROI. Getting this data requires systematic measurement, something many companies neglect because they lack the time or know-how. If you’re not tracking marketing ROI, read on.
What is marketing ROI?
Return on investment in B2B marketing measures the payback of your marketing efforts. Simply put, it’s how much revenue your strategies produce. We always say there’s no silver bullet in marketing but understanding your ROI lets you know which tactics are effective in moving your customers down the sales funnel. ROI can inform where to spend your time and money, and when to change your strategy.
As an example, one of our clients was drawing most of their business through Canada-wide direct mail campaigns. Then, over about 12 months, this tactic all but stopped working. In concrete terms, the cost of acquiring a single lead through direct marketing went from $150 to $1200. Equipped with this knowledge, we moved that spend to more lucrative tactics.
How to measure your marketing ROI
You can calculate your marketing ROI by subtracting your marketing costs from your revenue, and then dividing that number by your marketing costs. Multiply that number by 100 to get your ROI percentage.
Marketing ROI % = (Revenue – Marketing Costs) / Marketing Costs x 100
The higher your percentage, the better your ROI. That part’s easy. The harder part is measuring how much money was spent on marketing and how much money your marketing efforts made.
How to calculate marketing costs
Calculating marketing costs comes down to diligent measurement. First, determine the cost of each marketing channel. Divide that number by the total number of leads you gained from that channel. This is your cost per lead.
Cost Per Lead = Marketing Channel Cost / # of Leads
How to calculate your revenue
Get your revenue by multiplying the average client value (ACV) by the number of converted leads—but what’s your ACV? Determine ACV with the revenue you earn from an average client in a 12-month period and multiply that amount by the number of leads you converted.
Revenue = ACV x # of Converted Leads
With these simple formulas, you should be able to get an idea of some of the important metrics for your ROI.
What to consider when measuring marketing ROI
To get data with depth, you’ll need to take a more granular approach. The more complex your marketing plan, the more touch points you’ll have to measure.
There are many different models for measuring the ROI of marketing and how you measure success is often dictated by the type of marketing activity. Offline tactics like print, direct mail, and events are measured differently than online, like blogs, social media, and digital ads.
Since most B2B marketing tactics pull or push prospective leads to a company website, Google Analytics is a good place to start collecting conversion data. There, you can set goals to measure different conversions—whether it’s a white paper download or newsletter sign-up or something else—and then assign a monetary value to those conversions. From there, you can determine how many leads converted to a paid customer.
Conversion rate per Goal = (# of Conversions – # of Paid Customers) / # of Conversions x 100
Collecting the right data will help you determine what’s working and what’s not. Aim to set up a way to track conversions for every marketing activity. It’s important to attribute revenue to all stages of the marketing funnel.
Timing may not be everything but it sure does affect your marketing measurements. With PPC digital advertising, you’ll see results very quickly but it will take longer to measure your email marketing. Not every marketing tactic is meant to produce immediate results and certain initiatives can take months before achieving ROI. It’s important to set your expectations first.
The first step in increasing sales is measuring the ROI. From there, you can determine which channels are producing the greatest returns and how much financial investment they require. Armed with that knowledge, you’ll be free to carry on or change and adapt your marketing strategy assured that your budget is allocated to the most effective activities and channels.