Marketing is the unique facet of a business where teams are able to be creative and present content that attracts the target market. With all the options out there, deciding what theme to go with for a campaign or what influencers to collaborate with can get expensive. It’s very easy to go over a marketing budget but what you really have to pay attention to is if you’re getting an adequate return on investment (ROI).
Compared to other departments of your business such as accounting or engineering, marketing is a rather intangible school that can be very difficult to measure. It’s difficult to put your finger on a specific part of a pipeline and say that it was the sole driver in a sale. To better organize and strategize the ROI of marketing efforts there are a few methods you should adopt. We’ll go over the essentials in the following points!
Know Your Objective
Before we get into the nitty-gritty of methods, there is an overarching concept that you must pay close attention to and what the objective of your marketing plan is. Do you want to increase awareness to a specific demographic or get more downloads? Define what it is that will catapult your marketplace to success and frame it with incremental checkpoints.
A common mistake is assuming that maximum ROI means profits in the long or short-term, but in reality it does not. We want to maximize profit and that means being more effective with marketing rather than being efficient. Something you have to keep in mind is to always have a break-even-point with your plan. Find the threshold that will cross you over into a profitable place. Remember that marketing is not an expense, it’s an investment that should be monitored for future use as well.
Marketing ROI Formulas
The following is a basic formula for calculating the ROI of a marketing campaign. It serves as a good starting point and gives you a ballpark answer for the effects of your efforts. The issue is that when it comes to long-term strategies like content marketing, it can get more complicated as other methods are added to your marketing mix.
ROI = (Incremental Profit – Campaign Cost) / Campaign Cost
Just be aware the external variables (brand awareness, customer lifetime value, and search engine ranking) can shift your outcomes. This formula is simple enough to get your legs on pending projects and can be applied to most types of marketing methods.
The five types of attribution models are measured based on different touch points in the buyer’s journey. A potential customer can be attracted to an ad seen on Facebook and led to your website. The call to action to sign up for the mailing list is the next point and from there a sale can be made by offering an emailed promotion. All of these steps can pull different weights depending on which attribution model you choose.
- Single Attribution: The simplest of the five models is attributed to the first or last program that “touched” the deal. If a customer crossed paths with your business at a trade show and a deal was closed after all the general steps, the trade show would be the value of the deal. This method is usually too simplistic for an accurate reading but acts as a good foundation for the other models.
- Single Attribution with Revenue Cycle: This model acts upon the first touch single attribution but adds the projected revenue of a single program. The projection allows you to get an estimate of the ROI in a campaign. If a typical Instagram ad brings in a deal 5% of the time then you can easily calculate future revenue.
- Multi-Touch Attribution: Now we’re getting into a model that brings in a more accurate measurement if you weigh things out properly. The issue is that weighing each touch point out can be subjective. 25% for ad, 45% for a sales call, and 30% for a follow-up can be your ROI broken down. The bigger decision makers can be given more weight while others believe that it’s hard to tell what closes a deal so it’s best to weigh all points out evenly. In the end it’s what you believe with your business.
- Test and Control Groups: What better way to get in the mind of the audience than to bring them in? Testing and controlling group projects allow you to interact directly with your target audience and hear exactly how your product affects them. If you want to measure the impact of an ad campaign or if you’re getting the intended message across, this is a great way to do it.
- Marketing Mix Model: This model incorporates all marketing factors that can change your output. This is typically a very data heavy tactic and takes highly analytical skills to reach an accurate assumption of your efforts. Some factors to consider adding to your marketing mix model include: pricing, sales, the economy, competitive moves, place, distribution, etc…
Hopefully this short breakdown of marketing ROI can help you make you become more efficient and profitable. The overarching theme is quality over quantity! It’s a ton of information to take in but it will make you a better marketer in the end. Best of luck!
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