When businesses invest in marketing, they expect a high ROI. One of the most important aspects of a marketing campaign is evaluating its success and profit. A high profit indicates that your marketing efforts have worked and yielded good results.
The data and insights collected from the process help make better data-driven decisions. Also, by calculating the ROI, brands can understand which features and aspects work for them and which don’t. Frequent monitoring of ROI can help optimize resources better.
In this blog, we’ll learn what is ROI, why we should measure it, and common metrics used for measuring it.
What is ROI in marketing?
Marketing ROI is revenue growth and profit from all your marketing efforts. By calculating it, businesses can understand and measure the degree to which marketing efforts contribute to revenue growth. Ideally, it is used to justify the allocation of resources and budget spend on marketing campaigns across different channels.
According to a survey, improving marketing ROI and attribution is a top priority for marketers.
In today’s competitive digital landscape where customers expect a smooth and personalized experience, it is important to evaluate the marketing ROI to enhance the areas of weakness and discover new opportunities. It helps in discovering which channels work best for your business and provide a competitive advantage.
There are several types of marketing ROI
- Cost per Acquisition (CPA) Ratio
- Revenue
- Engagement Duration
- Customer Lifetime Value (CLTV)
- Sales Cycle Days
It is important to know the difference between them and how to measure it. For example, revenue is measured in net sales while CPA is measured in sales or marketing leads. Irrespective of the ROI used, it is calculated similarly.
Why measure ROI in marketing
Measuring ROI in marketing helps in making effective decisions and optimizing marketing strategies. It also helps in optimizing budget and better utilization of resources. To secure budget and resources for future campaigns, it is important that the important metrics and the current marketing budget is well examined. To do so, marketers have to calculate the ROI of their marketing campaigns. Track the performance of your current campaigns or ads, does it boost conversions?
With so many online and offline channels, there are plenty of combinations that we can use. However, any type of combination requires a budget. This is the reason why you should know which marketing channel yields higher revenue so that higher resources can be allocated to that channel. You should have the ability to measure the success of your campaign and establish comparative ratios that you can use as a reference for future. In this scenario, measuring ROI helps a lot. If we understand the result of each campaign on overall revenue growth, marketers can build a perfect combination of online and offline marketing campaigns. Small and medium enterprises get the most benefit from tracking the ROI due to their limited resources and budget.
By tracking the ROI of your competitors, you can understand how their firm is performing and what is working well for them. Marketers can use the publicly available financial data to study their performance and compare it with your data to check how efficient your brand is as compared to your competitors. It also makes sure that the efforts of your team are streamlined and there is clarity.
Common metrics for measuring ROI
According to Meghan Hardy, over the last few years, marketers have focused on metrics like ROAS and CAC. Here are some of the common metrics used for measuring the ROI
- Customer Acquisition Cost (CAC): It is the cost of acquiring a new customer. To calculate CAC, divide the total number of marketing costs and sales costs by the number of new customers acquired.
CAC Formula: ( Marketing Cost + Sales Cost) / Number of New Customers
- Return on Ad Spend (ROAS): It helps in measuring the revenue generated for every dollar spent on advertising.
ROAS Formula: Revenue from ad campaign/ Ad spend
- Lifetime Value of a Customer (LTV): It reflects the total number of reviews you can earn from a customer during their lifetime or relationship with the brand.
LTV Formula: Average Purchase Value x Average Purchase Frequency x Customer Relationship Duration
- Cost per Lead (CPL): It refers to the amount you spend on marketing for acquiring one lead, who can be a potential customer.
CPL Formula: Total Cost of Campaign / Number of Leads Generated
- Click-through Rate (CTR): It refers to the percentage of people who clicked on your ad or link out of the total number of people who viewed it.
CTR Formula: Number of Clicks / Number of Impressions x 100
- Conversion Rate: It refers to the number of people who have completed a desired action on your website or app. It could be downloading a case study, signing up for a newsletter, etc. According to a report from HubSpot, More than one in three marketers stated that conversion rate is their top KPI that they track frequently.
Conversion Rate Formula: Number of Conversions / Number of Visitors x 100
By citing high ROI, you can invest in marketing efforts, acquire more resources, etc. Are you looking for marketing assistance or advice? Lumia 360 is there to help you, we have recommendations and tips for small and medium enterprises. From email marketing to social media marketing, etc, we have got you covered. It will help in regular and more acquisition of customers. Our resources and strategies are well integrated. To know more, email us at info@lumia360.com or call us at 514-668-5599.
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