Overcome The Fog Of Marketing Math: Calculating Your ROI

Anyone who has ever stood before a group, trying to defend a budget item, knows how important return on investment (ROI) is to that discussion. But what happens when your ROI is a bit shrouded in a cloud of mystery?

That’s the challenge of marketing managers everywhere. They know that their investment is spurring growth, but tying specific techniques to quantified growth can be difficult in a field where murky concepts like brand awareness and reputation are critical to success.

This doesn’t stop companies from marketing, of course. In some industries, marketing represents a major part of where their revenue goes. On average, companies spend between 7 and 12% of their revenue on marketing, but a few industries spend significantly more. For instance, in 2018, consumer services spent over 13% of their revenue on marketing and tech/software biotech spent around 12%. Communications media and retail/warehouse marketing were in the 11% range.

Calculating Your Overall ROI

Calculating how much you spend on marketing as a percentage of your revenue should be a relatively straightforward math problem. Once you have this number, you can begin to get a clearer picture with a few methods for ROI estimation. Here’s one formula that can help you determine your return:

[((number of leads x lead-to-customer rate x average sales price) – cost or ad spend) ÷ cost or ad spend] x 100

You can get a better estimate if your number for ad spend includes elements such as the labor your marketing specialists put into your marketing campaigns.

Calculating ROI by Channel

You can also break down your understanding of your return on marketing investments by assessing each channel’s effectiveness.

Email

This is a great one to begin with, because email tends to have a high ROI and it will give you confidence to continue on to areas that may be more difficult to reconcile. Email is also easy to track; you can see how many click-throughs a particular email had and whether those finished in sales.

Social Media

Social media is one of the more difficult channels to assess, because many of the benefits are hard to quantify. You use social media to build community, to build your reputation as an expert in your field and to increase brand awareness. Those can’t easily be measured.

So, what can be measured? You should connect the metrics you use with the goals you are prioritizing for your marketing plan. If you’re trying to improve engagement, track behaviors like shares and comments. If you want increased traffic to your website, count how many visits to your site came directly from social media.

Events

Your assessment of an event’s ROI will include everything from the cost of the venue to the cost of paid speakers, your team’s time invested and any products purchased to feed, inform or entertain your guests. Your calculation of the connected return will consider the goals associated with the event. Were you trying to increase sales, or were you also trying to improve the number of subscriptions to your email newsletter?

Calculating your marketing ROI is always easier when you use an all-in-one automated marketing tool like DirectMail.io. Contact us to learn more about our reporting features.