So you know what return of investment (ROI) is, and why it’s important to your business. But it’s impossible to evaluate the success of your marketing plan unless you know how to calculate ROI.
How to Calculate ROI
The simple formula for ROI is:
(Gross Profit – Marketing Investment)
However, marketing ROI is often expressed as a percentage, so it’s multiplied by 100.
Pretend you invested $5,000 in a marketing campaign, and generated $13,000 in revenue. Plug those numbers into the formula. (13,000 – 5,000)/5,000 = 1.6. As a percentage, the ROI of that campaign is 160 percent.
5 Things to Remember When Calculating ROI
Tracking Marketing Performance
Knowing how to calculate ROI isn’t very useful if you don’t have the right numbers. One common problem many businesses face is measuring marketing performance.
Using software to track key analytics is the best way to make sure the numbers you’re plugging into the ROI equation accurately reflect your business’ operations.
Scope of the Calculation
Marketing ROI isn’t a one-size-fits-all concept. Your results will vary depending on whether you compute the ROI of a single campaign or your whole marketing mix.
Anyone who’s familiar with the buyer’s journey knows that it’s a process that takes some time. Not everyone is ready to make a purchase at their first point of contact with a business.
If the goal of a specific marketing campaign you’re running is not necessarily to make sales, but to generate or nurture leads, you’ll be at a loss when calculating that campaign’s ROI, because there’s no monetary return value attached.
Sometimes ROI is intangible, such as strengthening your branding. Keep that in mind if your ROI is not as high as you thought it would be.
Knowing When to Measure
Regardless of how confident you are in your marketing skills, the fact remains that the money you invest will have an uncertain impact. Maybe it will help you make dozens of sales by tomorrow, or maybe you won’t see a return for several months.
That means your results will be different at different points in the campaign’s lifecycle. So, make sure you give your campaign some time to deliver before squashing it based on poor ROI.
Adjust the Budget
After some time, your ROI may not be as high as you’d like it to be. The good news is that you have the power to change it. Perhaps you just need to allocate your marketing budget differently. There are a lot of things you can do to boost your ROI, but sitting back without making changes isn’t one of them.
Once you’re familiar with how to calculate ROI, and all the components that affect it, you’ll have more control over your business’ revenue. Never forget about free marketing mediums, like social media, which can only help your business’ bottom line.