Demystifying Marketing: Understanding ROI
I live in a world of metrics, and you probably do too. Mine are benchmarks like “page views” and “link clicks,” which I use to measure the impact of Chronogram Media’s sponsored content. Yours might be something like monthly sales or cost of customer acquisition. When it comes to marketing, one of the most popular (and misunderstood) metrics is return on investment ( ROI).
For small businesses, ROI can seem like a silver bullet. It’s one metric that can help you answer important questions like “Was this marketing campaign worth it?” and “Can I spend my time or money smarter?” But like all metrics, how you measure and interpret ROI is often more important than the number itself.
Here are a few tips to help you understand and better use ROI for your marketing campaigns.
How to Calculate Financial ROI
The goal of calculating ROI is to figure out how much money you’re making by investing in various marketing activities. Since it’s used to justify marketing budgets, create benchmarks for future spend and campaign performance, and to identify ways you can iterate on your marketing campaigns, it’s important to understand what goes into the calculation.
At its simplest, your percent ROI is your profit minus your investment in marketing, divided by that same investment in marketing. (For example, If I made $100 in profit during one month and spent $50 on marketing in that same month, my marketing ROI would be 100 percent since I doubled my investment.)
While it seems easy on the surface, deciding your window of profits and how much marketing investment you attribute to those profits is much trickier.
The Challenges of Calculating ROI
Today’s multichannel marketing campaigns are a hive of activities buzzing all at once. At Chronogram Media, our clients’ campaigns incorporate everything from print ads to digital banners, email newsletter sponsorships, social media marketing, native content, and extended audience targeting services.
Because there are so many variables running at the same time, it can be tricky to attribute profit to any one activity.
For example, a click on a banner ad may not directly convert a potential customer into a sale, but a digital banner ad + social media attention + a native article in Chronogram may collectively add up to a new customer. It’s not so easy to assign that sale to any specific marketing activity unless you ask the customer directly how they found your business. And even then, they might not have realized how many of your marketing touchpoints they’ve already come into contact with.
ROI is also best looked at long-term. Trying to measure ROI a week or month after your marketing campaign begins running isn’t long enough to understand the cumulative impact of all the parts of your campaign or even the results of a single tactic.
At Chronogram Media, we often tell our clients that the ROI of some campaigns might not show up for 6-8 months after a campaign. When you’re calculating potential profit from marketing activities, it’s important to know that something like increased brand awareness from a campaign you ran last year could result in a new customer long after that advertising stops running.
Solutions for Small Businesses
Though marketing ROI can be tricky to calculate precisely, it’s important to know that there are other ways small businesses can measure the impact of their marketing activities effectively.
First, before you embark on a new marketing campaign, establish specific goals that correlate with your marketing activities. This will better help you define how you’re measuring success.
Wanting to generate new customers and additional revenue is something that every business wants their marketing campaigns to achieve. But if those are your only goals, you’re not putting yourself in the best position to measure the outcomes of a nuanced multichannel marketing campaign. Other important goals for any small business include increasing your digital marketing presence, improving brand awareness, reinforcing brand loyalty with existing customers, and establishing your business as a thought leader in your industry.
It’s also important to know that marketing campaigns can do more than just deliver or not deliver on your goals. Marketing is something that businesses do all year-round, and you’ll pretty much always have some budget assigned to it so there’s no need to treat it like a zero-sum game. Your marketing campaigns can give you tons of insight about your current and potential customers’ behavior—from responsiveness to traditional advertising tactics to where in the sales funnel they might be falling off.
If you’re willing to simply learn and adapt your future activities based on the insight you gain from your campaigns, you’ll be working toward a better return on your marketing investment no matter what.