Every effort to grow and expand a company's work comes down to the expenses created versus how much revenue came in. Ideally, you want to be profitable, with the collective costs of your business adding up to less than what you're bringing in. It's important to know that your marketing campaigns are truly moving the needle on your long-term profitability. Measuring ROI (return on investment) in marketing can direct these efforts to the best and most effective marketing campaigns.
What Is Return on Investment?
Your return on investment is simply the income you receive due to a given expenditure. A famous analogy involves buying stocks: If you invest $1,000 in stocks this year and the stocks grow in value to $1,200 the following year, your ROI is $200, or 20%. The revenue divided by expenses yields your net profit or your generated return.
The challenge with understanding and measuring your ROI is identifying when a particular effort is a reason why the revenue came in. To further break down the stock example, you might look at the two individual companies you invested in and realize that one company lost 5% in value that year while the other grew by 50%. Your particular allocations landed the overall ROI at 20%.
Even if you're happy with the 20% overall gain when calculating your ROI, you probably want to reconsider if you wish to keep the same allocations for this pair of companies, particularly if the high-growth company continues growing.
ROI isn't just a way to calculate the return for stock market investments; it can also help you improve how you spend money within your company. Suppose you know you want to invest more into your business this year. In that case, you might consider combining research and development, higher-quality product materials, and marketing efforts. Still, a big reason you should ask the ROI question is that you want to put more resources into the elements of your business that will generate more profit for you.
Calculating Return on Investment for Marketing Budgets
Tracking involves complicated techniques using vanity numbers and URLs for each medium and campaign. With market spending, the goal is to isolate the money spent on marketing, including agency-based, in-house personnel, and paid advertising. You then want to see how much new business resulted from those campaigns. With traditional marketing efforts, it can be hard to isolate whether a given marketing approach did or did not bring in new business. However, digital marketing has almost always built-in ways to track analytics. For instance:
- Advertising platforms within social media sites let you know how many people see an ad versus how many people click on it.
- By adding Google Analytics code to your website, you can see how many clicks different pages of your site get and where your traffic comes from, such as particular search engines and search terms.
- If you share unique URLs to landing pages for each place where you're placing a QR code or promoting your business, you'll be able to track page views for those unique URLs. Tracking is made possible by using UTMs (Urchin Tracking Module code) that track specific campaigns, source platforms, and more.
As much as possible, you want to evaluate your marketing ROI based on fixed costs, like maintaining an in-house team or keeping an agency on retainer, and the variable costs for each advertising or marketing platform. A professional digital marketing agency best tracks, reports and compiles relevant information. Not only will the agency track and report, but they can create all of the tracking parameters listed above to ensure every marketing effort is accounted for when calculating ROI.
A simplified example might be calculating your ROI for a given Facebook advertisement as part of your social media campaigns. Say it requires 10 hours in team time to create and launch the campaign and a per-click cost of $0.25, just for simplicity. You want to see a bump in sales driven by the specific buyers who click through that ad, ideally more than the combined costs of that team time and those clicks.
Impressions or views of the ad also matter, even if they are harder to tie to your ROI. However, if your numbers are close, you may be getting additional brand recognition and traffic because of the ad, even those who aren't clicking on it. Then you can dig back into the website's data to see if there was a jump in traffic that was a little higher than the total amount of clicks recorded on Facebook. This research helps you make choices down the road that enhance your data-driven marketing efforts.
Of course, this is a simplified example. Still, it shows a basic way that you would want to isolate the factors that created your expenses, how you received revenue boosts because of those expenses, and what that relationship was.
The long-term goal is to evaluate multiple channels, or methods of marketing, to see if a particular marketing audience yields a substantially higher ROI. Once you've tested different options, you can zero in on a few high-value strategies with the help of your marketing team's evaluation.
Understanding How Marketing Outcomes Build Over Time
If your marketing plan relies on content marketing versus pay-per-click advertising, it's wise to plan a substantial time horizon for evaluating your ROI. With most marketing efforts, higher brand recognition can pay off many weeks or months in the future, but ROI may appear to be lower than expected at first.
Content marketing relies on building your brand's authority with search engines, which isn't an overnight project. At first, your high-value blog content will climb the search engine rankings for the right keywords. However, until you fully hone in on your most valuable keywords and linking strategies, you'll still be building your brand awareness relative to competitors. Though it will take time, if all of the listed items above, along with SEM (Search Engine Marketing) or PPC (Pay Per Click), are used optimally, you may see substantial traffic to your website, boosting sales and maximizing ROI.
It is important to remember that quality content, campaigns, and marketing strategies take time to develop. Omnichannel marketing agencies like Prodigitude deeply understand how all marketing strategies work and what is likely to maximize your ROI. It is normal to feel overwhelmed with digital marketing information, which is why Prodigitude can walk you through every task, create the content and campaigns, and track all of the results for you. Our help lets you lower your marketing costs while worrying more about running your business than what campaign you have to roll out next month.
To learn how to factor digital marketing, including content marketing, into your strategy to measure your ROI while growing your business's bottom line, reach out to Prodigitude today!