What is Marketing ROI: Definition and How to Measure It

Each year, companies roll out various marketing efforts across different platforms. All these campaigns need money for production, promotion, and work. So, how do businesses decide if the investment is worth it?

They check ROI, or return on investment. This helps them see how much money they’ve earned for each dollar spent on marketing.

Marketing ROI (MROI) is calculated to help marketers and stakeholders figure out if a campaign is worth their marketing money.

A successful campaign is one where the earnings surpass the marketing cost. Even if a campaign doesn’t go well, MROI and related stats can help marketers figure out what went wrong and avoid the same mistakes in the future.

This article will explore marketing ROI, clarifying what it means, how to figure it out, and why marketers find it challenging to get specific data.

What Is Marketing ROI?

Return on Investment in Marketing, or ROI, is a way of measuring the profit or income gained compared to the money spent.

When businesses and marketers look at ROI, they’re considering the overall picture, which includes total sales, income, or profit, along with other positive outcomes like increased website traffic, better search ranking, and greater brand awareness.

In the second case, marketers regularly check analytics across various channels like email, social media, and SEO to see how well their efforts are working.

There are different ways to figure out marketing ROI, and some of the most common methods include:

  • Revenue: This is the total amount of money you make from all your marketing activities.
  • ROAS: Return on Ad Spend (ROAS) checks how much money you make for every dollar spent on advertising.
  • Sales Cycle Days: The number of days it takes for a user to go from discovering your brand to buying a product. A shorter sales process is better.
  • Cost Per Acquisition (CPA) Ratio: The average amount a brand spends to get a new customer.
  • Duration of Engagement: This is the time a customer spends interacting with your brand or a specific campaign. Tracking this helps identify which parts of the sales process need improvement.
  • Customer Lifetime Value (CLTV): This is how much a customer is worth to your business over the time they stick with your brand. Marketers often look at this compared to the cost of getting a customer (CPA) to figure out if keeping a customer is more profitable than what it costs to bring them in.

In a campaign, a marketer needs to keep an eye on different signs. Companies often run several campaigns, and these analytics help figure out which ones are worth keeping.

Why is marketing ROI important?

Evaluating the success of your marketing efforts is crucial to know if they’re working well. Let’s break it down.

  • Indicates the performance of your campaign

MROI, or Marketing Return on Investment, tells you the real story of your campaign. Ultimately, what matters to stakeholders and leaders is the bottom line. If your campaign gets a bunch of leads, but very few actually become customers, leaders might decide it’s not worth continuing.

MROI helps you assess your campaign more thoroughly. It prevents you from being misled by incomplete indicators like lead volume or click rate, which might not give the full picture of success. Relying only on these could lead to making not-so-great marketing decisions.

  • Identify the most effective marketing channels

MROI helps marketers figure out which channels work best for each campaign. This way, they can concentrate their marketing efforts on creating and promoting content that suits the top-performing channels.

  • Optimize marketing budget distribution

As a marketer, you’ve got a set budget to work with. By using MROI analytics, you can channel funds towards channels and initiatives that have a proven track record of success. This helps in planning future marketing budgets and expenditures.

For example, if a new campaign needs more funds to kick off successfully, you’ll need to tweak the budget for that month or quarter accordingly.

  • Secure further marketing investment

When you show stakeholders a straightforward view of your progress, it eases their concerns and builds trust. MROI (Marketing Return on Investment) is a handy tool to showcase successful campaigns and secure funds for upcoming marketing projects or additional support for ongoing ones.

How To Calculate Marketing ROI

To figure out your complete marketing return on investment (ROI), just follow this simple formula:

Marketing ROI = (Sales Growth or Revenue Generated − Marketing Cost) / Marketing Cost

For example, if sales grew by $5000 and the marketing campaign cost $500, the ROI is 900%. However, most marketing efforts look past this simple marketing ROI formula.

Most marketers use direct or indirect revenue attribution to calculate ROI. Direct attribution means giving credit for all the money a customer spends to the last marketing element they interacted with before making a purchase.

Indirect attribution is used to distribute income evenly across all the marketing channels a customer interacts with.

A combined approach can also help you figure out which channels bring in the most leads and conversions.

Marketers can employ advanced algorithms to monitor Return on Investment (ROI) throughout a campaign. For instance, you can utilize this method to figure out MROI. To gauge ROI in the middle of the sales cycle:

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

Because marketing channels lack precise numbers, it’s advisable to consider:

  1. Time spent: The time taken to start or finish a campaign, from the beginning to the present stage.
  2. Production costs: The money spent on assets used in the campaign.
  3. Page Analytics: How visitors interact with your website.
  4. Non-financial returns: Positive non-financial outcomes encompass heightened engagement, website traffic, and brand awareness.

The Challenges of Calculating Marketing ROI

If you’re new to MROI, you might think that figuring out MROI involves gathering data and then using it in calculations. But it’s not that simple. In fact, showing ROI was the second biggest problem for marketers in 2021.

About 35% of marketers think that not having good communication between sales and marketing will be their main challenge in 2023.

It’s tough to measure marketing ROI because linking a lead to just one channel is tricky, even with improvements in tools and technologies.

For example, imagine you have a social media marketing campaign that brings a user to your website. Then, they spend days or weeks engaging with various types of content marketing (like a video, email, or webinar) before making a purchase.

In this case, pinpointing the main source of leads or income to just one channel might be a misstep. Instead, make choices using the specific details related to each channel.

Based on a report from 2023, 79% of people mentioned that watching a video convinced them to purchase an app or software.

Yet, this doesn’t mean that video was the primary tool for generating leads in your campaign.

It’s more effective to gauge Marketing ROI over time. This means that marketers often go beyond the initial figures obtained at the beginning of a campaign and, instead, focus on other enhancements, like broadening the audience or increasing engagement levels, to evaluate success.

Marketing ROI Benchmarks Across Different Channels

As marketers, it’s crucial to keep track of how well your campaigns are doing by looking at analytics across various channels. Let’s explore some key channels to check the return on investment (ROI).

Email Marketing ROI

Email is known for having the best return on investment (ROI), with studies indicating an average return of $42 for every $1 spent. Consequently, many businesses heavily depend on this marketing method.

You can measure the effectiveness of this method by keeping an eye on essential email marketing KPIs such as open rates, click-through rates, and bounce rates.

For example, you can add special tracking web addresses in the call-to-action buttons of your emails. This way, when you send a time-sensitive deal in a marketing email, it’s easy to see which users clicked on the link and applied the code to finalize the transaction.

Social media ROI

The success of social marketing goes beyond specific numbers like leads or website traffic. Now, marketers need to keep an eye on engagement metrics, like likes, comments, follows, and page views.

These metrics help you figure out if your marketing is hitting the mark and connecting with your audience. If your posts aren’t getting much attention, it’s a signal to switch things up. Consider options like paid marketing or sponsored posts.

For example, let’s say you’re a SaaS company offering a free trial of your platform on all your social media channels. The link to this promotion is a tracking URL. Using this URL, you can find out which platforms got the most sign-ups.

Monitoring engagement on social media is crucial. If you notice a sudden increase in likes, it might mean that people are excited about the promotion. Capitalize on this by creating additional posts that ask for feedback or suggestions in the comments. These comments can influence potential customers and make them more inclined to explore your software.

PPC Campaigns ROI

PPC, or pay-per-click, campaigns help marketers increase brand awareness through paid advertising. In this strategy, the company pays a fixed amount every time someone clicks on their ad. On Google, your ads might show up on search engines, YouTube videos, and different websites.

Here’s an example of a search ad:

Marketers can create highly tailored ads to reach specific user groups and use simple phrases. After putting up the ads, it’s the marketers’ job to evaluate and improve the pages they guide users to.

Measuring ad metrics involves looking at website traffic, leads generated, and conversions. These numbers can help you identify issues in your sales process.

Analyzing how much money your ads make is important. Marketers often look at the return on ad spend (ROAS) to figure out if a campaign is working well, needs improvement, or should be stopped.

Content Marketing ROI

Every content marketing plan includes different types of content, various platforms, and specific goals for each platform. Content marketing covers blogs, videos, guest articles, social media posts, and other content forms.

The main goal of content marketing is to increase your rankings on search engines. Content marketing return on investment (MROI) keeps an eye on leads, conversions, and channel analytics.

For example, if blogging is in your strategy, the number of views and shares for each blog shows if the plan is working effectively.

Video marketing ROI

Video’s reign supreme in the marketing world is undeniable. A staggering 92% of marketers in a 2021 survey declared video an “essential element” of their strategy, and there’s no sign of its dominance fading. This surge in popularity stems from video’s unique ability to captivate audiences, build brand connections, and drive results. It’s no longer just a trendy add-on; it’s become a cornerstone of successful marketing campaigns across industries.

In 2023, the significance of videos has surged like never before. A whopping 96% of marketers, the highest in the past nine years, shared that video plays a ‘vital role’ in their marketing strategy.

No matter if your business is B2C or B2B, videos are vital for clarifying and promoting your products. That’s why the survey found that explainer videos and social media clips were the favorites among marketers.

To measure the return on investment (ROI) of video marketing, we look at the number of views, how long people watch, shares, click-through rates, and conversions.

For example, if you have a YouTube channel about plumbing with tutorial videos that get lots of views but don’t bring in many actual website visitors or potential customers, your marketing return on investment (ROI) may not be great. This highlights the importance of tailoring your content to your local audience so that those in your area can take advantage of what you have to offer. Local SEO can also be beneficial in this case.

Sponsored content ROI

Sponsored content is created to boost awareness of your products or services. Usually, companies pay someone who advertises, has an influence, or shares content to create and spread brand-related material. Paid reviews on social media and YouTube are common examples of this.

The aim of sponsored content is to get more people interested. If a reliable influencer gives your product a thumbs up, customers are more likely to give it a try. Measuring success can be a bit tricky here because more attention doesn’t always mean more sales.

To figure out the return on investment (ROI) for sponsored content, you can calculate it by dividing the cost of hiring an influencer or content creator by the number of leads or conversions their video or post brought in.

For example, if a social media influencer charges $1,000 for a post and their followers end up spending $3,000 on products, it’s a great investment.

In lots of cases, marketers don’t monitor immediate sales resulting from sponsored content. Instead, they focus on the number of clicks received from posts by publishers.

Customer Lifetime Value and Customer Acquisition Cost

Customer Lifetime Value (CLV) is the amount an average customer spends on your products or services while being your customer. It’s a vital marketing statistic because many businesses aim to create brand loyalty beyond the first purchase.

When assessing MROI, comparing CLV to client acquisition cost provides a more accurate measure of your brand’s success. Customer acquisition cost (CAC) is the average amount spent to get a new customer.

The CAC:CLV ratio is a crucial indicator of corporate performance. Many experts consider a 5:1 ratio fair for most organizations, and 10:1 is outstanding.

If it takes around $400 to bring in a new customer, but that customer is expected to spend over $2000 in the coming weeks or months, the ratio is 5:1, showing that your marketing plan is working well.

A smaller percentage suggests that your marketing isn’t doing enough to create brand loyalty and needs some tweaking.

Final Thoughts

Determining Marketing ROI can be a bit tricky as it relies on various smaller factors. Marketing and revenue go hand in hand, so ignoring important marketing signs like better engagement, website visits, and improved search rankings could be a misstep.

Yet, it’s crucial for marketers to take a broader view and link their marketing efforts to generating income. Some businesses overlook essential indicators, leading to misguided decisions solely based on leads and conversions. Instead of refining and sustaining their marketing strategies, they opt to erase and start anew, which can be costly and not always necessary.

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Jugnu Nagar
Author: Jugnu Nagar

SEO Specialist

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