Understanding ROI in Marketing

We have talked before about the importance of marketing including making sure you have a marketing strategy and a budget. But in the current economic climate businesses are looking to make savings wherever they can and you might be questioning the value of marketing.

​This month we thought we’d take a look at how you can measure whether your marketing is giving you a good ROI (Return On Investment) by comparing how much you are spending on marketing with the revenue created.

How to measure marketing ROI
There is a simple formula you can use to measure marketing ROI but first you need to gather certain metrics:

• Number of leads: How many people converted to a lead?
• Lead-to-customer rate: From those leads what percentage converted into customers? Eg if 10 leads out of 100 converted into customers that gives you a lead to customer rate of 10%
• What is the average price of your product?
• How much did your marketing campaign cost? Include costs of the ads including staff costs of those who worked on the campaign.

Customer Lifetime Value (CLV)
CLV is another useful measure of ROI – a simple formula for calculating your CLV is:
CLV = (Average value of a transaction) x (Average number of transactions) x (Customer lifespan)

CLV is a great marketing analytic because it tells you how much a customer is likely to spend with you and gives you insights that will help you plan your marketing strategies.

But ROI isn’t just about financial measurements, you can also get a good indication of ROI from other sources:

• Increased brand awareness – A big marketing push is common among startups to increase brand awareness and carve a space in the market.
• New social media followers – While increased numbers alone doesn’t necessarily mean positive ROI, if the new followers are your target audience and are engaging with your content then they are more likely to become customers.
• Email newsletter signups – Email marketing is a valuable way of reaching both new and existing customers. Use email marketing to send personalised offers, deals and new products and services. Tracking sales attributed to email subscribers can help you decide whether to invest more or less time in your email marketing.

How you can Improve your ROI

• Set Clear SMART Goals: Be specific about what you want to achieve and set a deadline (and stick to it)
• Track your metrics: Google Analytics is great for keeping you up to date with important metrics such as sales, website traffic etc.
• Analyse the right metrics: There’s no point focussing on metrics that don’t help you achieve your goal. Wanting to increase revenue? Focus on conversion rates and CLV. Looking to increase brand awareness? Direct traffic and social media mentions will give you good insights.

Is your business marketing in need of a boost? Creative Remedy can help improve your ROI with a bespoke prescription for your business. Get in touch to find out more.