How to Calculate Marketing ROI
Whenever a business is driving a marketing crusade, one of the most vital things it needs to do is to calculate the efficiency of the campaign. Evaluating the influence and performance of the operation helps in determining if the efforts are generating positive results or not. The details gathered from this evaluation can then be used to make improved decisions in the future. Marketing ROI is used to evaluate the profits and revenues gathered from the initiatives. Then, with the ROI, the business can be able to measure the degree of their marketing effort.
In most cases, a business will use a digital marketing agency for the campaigns as well as calculating the ROI. Calculating the return of the marketing investment helps companies to make and change decisions as well as improve their marketing plans. Marketing ROI is utilized by businesses to;
- Justify the spending
- Distributing budgets for marketing
- Measuring the success of campaigns, as well as, their strong and weak points.
- Analyzing competition
Calculating Marketing ROI
There are various ways of calculating ROI for marketing
Growth of Sales- Cost of Marketing
When you use this formula, you are assuming that the entire growth in sales has been produced from your marketing efforts. So, you deduct the cost of promotion from the growth to get the profit garnered. This profit is considered as marketing ROI.
Growth in Sales-Organic Growth-Marketing Cost
This is the most effective way of calculating ROI compared to the initial one. Every time you are calculating your marketing ROI, it is always advisable to put into account the organic growth in sales. When measuring the ROI, consider various factors like;
Gross Profit. Using gross profit helps marketers to know the returns generated after the cost of producing and delivering products or services.
Total Revenue. This means looking at the entire revenue generated from the campaigns. With the details of the income, you can have a clear view of your marketing effort.
Net Profit. With this factor, you can exclusively calculate the marketing returns by subtracting the extra expenses from the gross profit. You will also need to include other expenses like:
- Media buys
- Internal and overhead expenses
- Agency fees
The Challenges of Calculating Marketing ROI
Calculating ROI might seem like a small and simple task. However, the truth is, this can be complex with a lot of layers. Some of the challenges you will come across when calculating marketing ROI include:
Focusing on Short-Term Goals
Many people who invest in marketing campaigns want to see immediate and specific results. Often, you will end up looking at social media shares, impressions, and such. However, campaigns intended to improve brand awareness and customer retention take months, even years, before you start seeing the results. So, it is always important to be clear on the goals to be able to set a reasonable duration before calculating the returns.
The Measurements are Basic
Whenever you are evaluating your ROI, you need to put into account various factors. Remember, your marketing campaign will be impacted by other factors and you must include them when calculating your ROI.
Businesses need to have a strategy for calculating the profits they gather from their marketing campaigns. The ROI calculated helps in determining the effectiveness of the campaign. So, businesses need to set clear goals and develop an analytic platform.