Marketing refers to everything businesses do to promote their brand, attract customers, and build a relationship with them. Over the years, it has gotten better with more ways and opportunities to grow an audience and expand its reach.
Regardless of your marketing strategy or how well-thought-out it is, what matters is its contribution to your brand growth. Measuring return on investment (ROI) is essential to determine whether or not your marketing efforts are helping your business improve its bottom line. Let’s explore the concept of ROI in marketing as we answer your hows and whys.
What is ROI & Why Measuring It Matters
Today’s top digital marketing agencies look at ROI to test whether a campaign contributes to a business’s revenue growth. In its basic definition, ROI is a measurement used to analyze the profitability of a campaign. It compares your marketing spend with the revenue you gain from a specific campaign across all your marketing channels. These channels could be anything from email, social media, search engines, etc.
The insights you gain from measuring your ROI allow you to evaluate the effectiveness of your marketing efforts. But, more importantly, it lets you focus on the results of separate campaigns, how profitable each is, and which channel delivers the most desirable outcome.
When you have clear information about which campaign delivers the most competitive advantage, you can pivot your marketing spend on those channels to optimize your marketing efforts and reach more audiences. At an organizational level, the data derived from measuring your ROI also enables you to defend your marketing budget and justify further spending towards that campaign.
But, how do you measure ROI? You can calculate your marketing ROI by subtracting your marketing costs from your gross profit to get the net profit. Then, divide the net profit by the total marketing cost. Because ROI is generally expressed in percentage, multiply the result by 100.
For example, if your sales grew by $1,500 and your marketing campaign cost $1,000, then your ROI is 50%. Your marketing formula would be: (1,500 – 1,000) / 1,000 x 100 = 50%.
A good marketing ROI is generally a 5:1 ratio. When you get anything below a 2:1 ratio, then your campaign may not be profitable, as this could mean you only break even with your spending and returns. However, keep in mind that because every organization is different, you may still see profit even with a lower ratio, considering other factors specific to your industry, such as overhead costs and margins.
How You Should Measure Your ROI
When you’re working with a digital marketing agency, they could help you interpret your ROI and use the data derived to guide you with your marketing decisions. They would help you determine which marketing efforts drive the most leads. This way, you could allot your marketing budget to the most effective channel.
Below are three ways agencies can help measure your ROI in three of the most used marketing channels today.
A 2020 report reveals that search remains the single largest online traffic source, driving more than 50% of web traffic to sites. Over 92% of all global searches are attributed to Google, 8x more traffic than all search networks combined.
There are many ways you can track the results of your SEO efforts with the help of tools like SEMrush and Arhefs. These monitor your keyword rankings, website authority score, and several inbound links, among others—factors that give you insights into how well your strategies are performing to help improve your search rankings.
With Google Analytics, you can also track your conversions to determine how much traffic organic search is driving to your site and how much of that traffic converts into leads. Other than that, the best digital marketing agency should also demonstrate further the effectiveness of your SEO strategies using other tools which track what the Analytics cannot, like call tracking software.
It’s not enough to know which ads get the most clicks, you also have to know which campaigns generate the most conversions into phone calls and form submissions. Google Ads or Microsoft Ads with conversions set up can help track these results by using UTM parameters.
While it can give you some guidance, the Ads platforms are not without some blind spots. In particular, they cannot follow a visitor throughout their buying journey. What happens after the visitor makes a phone call or submits a form? In this matter, your agency should demonstrate results by identifying which keyword, ad, and landing page drive the most qualified leads using a set of tools with capabilities beyond the basics. Getting this data should help you maximize your PPC budget.
With social media, most analytic tools measure your audience’s growth and engagement with your content. While this data can help you build your profile, it gives insights into what social media activities deliver the most ROI.
Google Analytics has social reports that let you see which social networks drive the most traffic and conversion. You also have Facebook Insights that track the number of clicks on your CTA button. Other tools that can help you calculate your social media ROI include the following:
- Facebook Pixel provides a breakdown of traffic, attribution, and conversion data for paid ads.
- Ads benchmarks measure your social media ROI by understanding the daily changes on your return on Facebook ads across regions and industries.
As a business that generates leads online, it’s essential to determine which marketing efforts deliver the most results. By identifying the sources of leads, you’ll be able to allot your marketing resources—time, money, and manpower—to the most effective strategies.
When you work with a digital marketing agency, you get access to a more comprehensive set of tools that give you insights into what is working to drive quality leads and a full picture of a visitor’s journey as they convert into leads.