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What is Return on Investment (ROI)?
In marketing, Return On Investment, or ROI, refers to the amount of money generated by a particular campaign, service, or product.
Often, this is referred to in terms of proportion – revenue versus resources used.
The easiest way to measure is by monetary value, though time and other resources should be accounted for as well.
Generally the goal is to maximize your return on a particular investment.
In order to do this, you must measure and track relevant metrics.
Otherwise, how will you know if a particular strategy or tactic is effective?
Having good data allows you to make better decisions related to marketing, and can help make your business more profitable.
Using analytics in this way is a part of “Business Intelligence”.
What Should You Measure to Calculate ROI?
As previously stated, we want to compare input (resources) to output (revenue).
A good equation for calculating ROI is:
(Revenue — Investment) / Investment
If you invested $5,000 in marketing spend and $10,000 in revenue was generated from that tactic or channel, your formula would look like this:
($10,000 — $5,000) / $5,000
You then multiply the answer by 100 to get a percentage. In this case, your marketing ROI is 100 percent.
To calculate this formula, you need to know both what your resource inputs are, as well as the result.
This is where analytics come in. The level of detail you want to go to is up to you, and may vary over time.
The first thing is to understand where your customers are coming from. The term “attribution” means tracking how consumers have found your business.
Analyze All Of Your Campaigns
You likely have more than one marketing campaign for your company.
From billboards and pamphlets, fliers, signs, television/radio commercials, to SEO and PPC marketing, and marketing on social media platforms such as Facebook or LinkedIn.
This can be a good thing – diversifying your marketing materials helps identify which platforms offer maximum impact.
But unless you regularly analyze each campaign – and its performance – you won’t be able to improve your marketing ROI.
Take the time to look through each individual campaign.
Can you analyze how many leads have come from it?
Do you know how much you’ve spent on it?
Could your money be better spent elsewhere?
See which ones have the best return on investment, only then can you maximize marketing efficiency – it all comes down to focusing your efforts on what works.
Have A Clear Goal – And Work Towards It
This is one of the things that – shockingly – many companies fail to do.
Okay, so you want to increase your marketing ROI. What’s your actual goal?
Do you want to spend less money to bring in more customers? Increase the reach of an already-successful campaign? Spread out to a new demographic?
Until you have a clear goal that you’re working towards, you won’t be able to maximize the ROI of your marketing strategy – because it won’t be clear what “return” you are actually getting!
So when re-assessing your marketing strategies, start backwards.
Don’t just look at your marketing strategies and how they contribute to a larger goal. Start with your goal, then ask how your marketing approach is helping you achieve that goal.
This top-down approach will help focus your marketing efforts, and streamline your approach to marketing.
One thing to avoid is putting too much value on relatively meaningless data. Low-value “vanity metrics” can include things like how many followers you have on a particular social media platform. More might be better to an extent, but does it directly impact your sales?
Priority should be given to what directly brings in dollars.
What is a good ROI percentage for marketing?
This will vary widely depending on your industry, type of business, local vs international, etc.
Anything with a positive ROI (over 100%) is technically helping, although it may not be enough to truly be worthwhile. A return of 400% using PPC ad campaigns could be routine for one company, but nearly impossible for another.
There are a lot of variables, but by experimenting with different tactics, you can find what works best for your business.
A good marketing strategist can help you determine which marketing tactics are most likely to have a positive return AND be practical for your business to take advantage of.
Remember, money is not the only resource. Advertising involves assets you may or may not be able to produce in-house, such as text copy (think taglines), graphics, and more. Ignoring these and throwing money at an ad that uses low quality assets is not a situation you can easily buy your way out of. Make sure you put proper attention to all aspects of your marketing.
How can I increase my ROI?
There are two basic ways to improve your return:
- Increase Revenue
- Reduce Costs
To accomplish this, you must know your audience well – hopefully better than your competition does.
Know Your Audience
This is a very basic thing that often goes overlooked when you begin to run multiple marketing programs.
You don’t want to appeal to the broadest possible variety of people.
You want to appeal to the specific market segment that is likely to buy your products.
For example, say you’re a real estate broker.
Would you advertise on Snapchat or Instagram – services that mainly bring in younger, Millennial consumers who have less money and lower incomes?
Or would you invest in platforms which are more likely to reach older folks who have substantial savings, or who already own property?
The latter will likely provide better results.
Marketing to younger consumers is all well-and-good, but even if they are aware of your services, they may not be able to use them for some time.
Always target the consumers who can use your services or products first – appealing to other demographics should always be secondary.
If you are providing specifically what your customers want and need, you may be able to charge more for it versus a more generic solution.
Additionally, digital ad campaigns are typically less expensive when the targeting is set up properly, and the quality of the ads are good.
Putting these two concepts together will achieve a better digital marketing ROI.
Follow These Tips – Maximize Your Marketing ROI
There are dozens of strategies you can follow to enhance your marketing efforts – these are just 3 of them. But these tips are a great place to start, so think about how you can use them in your business.
If you would like some help auditing and improving your marketing campaigns, Nexus can help.