Measuring Your Marketing ROI
ROI or Return on Investment is the result of a formula that determines the profitability of a cash outlay. You can calculate the ROI of a marketing investment by subtracting the initial investment cost from the final value to get the net return. Divide the net return by the total cost of the investment, including any fees or other expenditures, then multiply by 100. When you consider all the moving parts of a marketing campaign, keeping up with all the different factors affecting ROI may seem daunting.
ROI = [(Final Value – Initial Investment)/Total Cost] x 100
An accurate picture of your investment performance depends on the valuable insight provided by KPIs and metrics. A proper KPI strategy lets you maintain long-term success. By establishing and monitoring the right metrics and performance indicators, you can understand more about your marketing effectiveness, allowing you to pivot and adjust as necessary. Here, we’ll look at some steps you can take to measure your marketing ROI effectively.
Determine What Brand Recall Looks Like
It can be challenging to determine the success of nebulous elements like brand awareness and recall. However, it is worth it to do so as those are critical insights for long-term ROI. Brand recall is best viewed as impacting brand awareness as opposed to an indicator of growth. Tracking brand awareness may require focusing on engagement metrics from social media, while proving ROI to leadership could mean quantifying each micro-conversion for leads during each stage of the sales funnel.
Setting SMART goals for your campaigns and establishing KPIs to measure your progress gives you the evidence you need to track whether you are hitting your goals within your budget. By monitoring and tracking whether you are hitting your KPIs, you can make mid-campaign adjustments rather than waiting until the end of the campaign to measure its efficacy. Even if your target audience isn’t ready to make a purchase yet, making your brand top of mind will reap the rewards of increased sales later.
Pair Campaigns with SMART Metrics
It is crucial to choose metrics wisely then build them into your campaigns for easy monitoring. Tracking your marketing objectives by setting specific, measurable, achievable, relevant, and time-bound metrics helps provide actionable data. For instance, you can gain insight into customer engagement by looking at social media views and web analytics like clicks and page visits. While tracking exposure for radio advertising may seem difficult to measure, there are ways to accomplish it.
One method is to use proxy metrics alongside your radio ads. Using SMART metrics, you can get insight into brand awareness by monitoring the increase in website traffic based on a call to action in your radio ads. You can also measure the ROI of radio marketing by using special URLs or promo codes that tie directly back to the radio host, show, or station. These techniques, paired with SMART metrics, give you tangible evidence to use for proving the ROI of your radio advertising.
Determine Your Ad Spend
When setting the budget for your future ad spend, base it on your current successes. Success looks different to each business, though many use product sales volume, sales leads generated, or customer engagement as a measure. As your sales or profits increase, review your budget and adjust accordingly. It is important to identify your baseline measurements for future success and to divide long term goals into interim short-term goals.
Now that you’ve established your long and short-term goals and determined the SMART metrics to track your progress, it is time to set the budget for your ad spend. You can use a formula to calculate the upper and lower bounds for your initial budget:
- For the lower bound, start with 10% of your projected annual gross sales and use 12% of the same for the upper bound.
- Multiply each by your average transaction markup.
- Subtract your rent or commercial mortgage payment from each number to arrive at the minimum and maximum numbers for your ad budget.
When reviewing your ad spend, use sales funnel mapping, making sure to acknowledge each possible way that your customers can make a purchase. This mapping can help you understand how your clients find you, what information they seek before purchasing, and what other factors influence their final decision. Compare your marketing efforts to the funnel to measure how well they are working. Detail your ad spend on each and minimize spending where it is less effective.
Be SMART About Measuring Your Marketing ROI
ROI is the foundational element of your marketing planning. After all, the point of marketing is to increase your bottom line and grow your business, so you need to get a positive return on your marketing investment for it to be worthwhile. However, to measure your progress toward your goals and calculate your ROI requires significant planning instead of guesswork. You must be able to describe how you will measure success in each area of your marketing plan, such as radio ads, brand awareness, brand recall, and more.
Once you’ve identified your key performance indicators, you’ll need to establish a baseline for comparison. Use SMART metrics to support your organizational goals. Some of the many metrics you may track could be organic traffic, time on page, conversions, social shares, and ROI for each part of your plan. Using the measures outlined in this post, you should have a better understanding of ROI and how it applies to your campaigns.