In an era where proving ROI is critical to success, here’s how you can calculate marketing ROI to prove a positive impact on the business.
Marketing ROI: Identifying the Right Formula for Measuring Success
The dictionary definition of success is “the accomplishment of an aim or purpose.” Yet as humans, we know that success is a relative term, and the criteria for claiming success depend on context — who you ask, the specific aim or purpose, and the metrics used to measure if the accomplishment was reached.
In business, profitability is among the biggest indicators of success. You are successful because your business brings in more money than it spends to produce the product or service. This also illustrates the most basic definition of return on investment (ROI) — you get more than what you put in. ROI is the metric often used to justify the success, and existence, of a service, technology, department, individual, campaign, or singular effort.
Each department has its idea of a positive ROI. And it’s important to remember that while there are general rules of thumb around definition and calculation, every organization is different, and measuring ROI isn’t an exact science. Before declaring a number to the team and socializing it to the larger organization, be sure to consider the overhead costs, margins, and external or unique industry factors.
What Is Marketing ROI and Why Does It Matter?
Marketing ROI is the return on investment to the business from all marketing efforts or campaigns launched. It illustrates how your marketing efforts are performing and measures the profit and revenue growth brought in from various marketing channels. And while the goal of ROI is to make more than what you spend on a campaign, a good marketing ROI will vary based on industry and channel — email marketing, event marketing, social media marketing, digital marketing, content marketing, etc.
So why does marketing ROI matter? Look no further than a challenging macroeconomic climate to see that investments need to be justified, whether they are in program spend, event calendars, or headcount. Now more than ever, marketing leaders are being asked to justify every dollar spent, down to the penny, on their marketing efforts. As a result, it’s critical to understand how much return each strategy brings to the business.
In addition, marketing ROI provides insight into your target audience’s behavior by highlighting the channels or messages with the biggest impact. And while those indicators may not directly move the bottom line (think social media engagement, booth visits at an event, signups for a webinar), they fill the pipeline with qualified leads that are more likely to convert.
How Is Marketing ROI Calculated?
The ability to identify which marketing efforts are driving a positive ROI is crucial as it enables you to make smart business decisions faster. If a channel is underperforming, you can pull from its pot and reinvest those dollars into a higher-performing channel. Or if you’re asked to scale down your budget, it makes the decision to pause or cut a program clear.
Quickly and definitively showing marketing ROI is particularly important in a down economy where marketing is often among the first departments to feel the pressure of a watchful eye or the sting of a mandatory budget cut. It’s much easier to defend marketing spend and justify further investments into technology or channels when the efforts are turning around a positive and material business impact.
To calculate marketing ROI, consider the following formula: Pipeline Dollars Influenced / Marketing Cost. The outcome helps marketers understand the impact of each channel or vendor relative to each other, which gives deeper insight into where to invest more or less.
- Pipeline Dollars Influenced: Total pipeline dollars influenced by the campaign.
- Marketing Cost: Dollar amount spent creating and promoting the campaign, including digital spend, agency or contractor spend, and production costs.
Remember, you don’t need to subscribe to one marketing ROI calculation. It’s a good idea to develop metrics that aren’t strictly tied to a dollar amount as they still provide valuable insight into impact (i.e., softer metrics like social media engagement, video views, open and clickthrough rates, etc.).
At the end of the day, marketing ROI tells an important story by irrefutably providing insights into the most impactful message and channel for reaching and encouraging engagement with your target audience. By tying that data to a positive impact on the business, there’s no denying marketing’s role in a company’s success.