How to measure your marketing ROI accurately

Don’t let your campaign optimization be just a guessing game. Measure ROI accurately and let all your efforts yield the results you want.

The world is moving away from the idea that marketing is a fluffy expense and campaign spend can be cut when times get tough, especially after the advent of digital marketing. Return on investment, better known as ROI, is a key performance indicator (KPI) that is used by businesses to optimize campaign budgets and track the success/failure of a marketing campaign. After all, the bottom line is knowing if you’re getting your money’s worth after all that dedicated campaign reporting.

Calculating ROI is important to help you-

  • Justify your investments and campaign spend.
  • Focus on the best investments and campaign optimization.
  • Focus on the true purpose of the marketing function factoring the optimization of the campaign budget.
  • Gain support for our investments and their role in the company.
  • Comparing marketing efficiency with Competitors.

Calculating your ROI in your campaign reporting is a relatively simple and straight process. All you need to do is divide the gains from your investment by your investment’s cost and the answer is evident as a percentage or ratio. If you calculate a positive number, you have gained, if it’s negative, you lost money. (Gross Profit – Marketing Investment)/Marketing Investment.

However, determining your ROI is a different game altogether for campaign optimization. You cannot miss out considering certain hidden yet significant factors like time, cost, effort and of course the stress involved apart from the money in the campaign spend. Also, measuring gross profit accurately from the total revenue generated for a particular marketing campaign gets a little tricky during campaign reporting when you are dealing with multiple campaigns running simultaneously with scattered human resources.

So, although you may not be able to track sales tied to your campaign with 100% accuracy, you can still attempt to get as much confidence with your results.

This is how you can determine the ROI accurately for campaign optimization.

  • Assign a unique ID to each campaign as a part of your campaign reporting in your CRM or tracking file that will help you track the prospect through the sales process and know whether the prospect converted into a customer and what they bought. For sceptical investors, the gross profit is replaced by the Customer Lifetime Value (CLTV) which provides a good insight on a long-term investment in marketing and optimizing your campaign budget. Hence the data needed to calculate the ROI of your marketing campaign would be:

For Short-Term marketing campaign optimization:

  • Total marketing investment (A)
  • Overhead allocation (B)
  • Incremental expenses (C)
  • The gross revenue of the campaign (D)
  • The cost of goods for all the units sold via the campaign (E)

Then, your ROI = (D-A-B-C-E)/A

For Long-Term marketing campaign optimization:

  • Total marketing investment (A)
  • Overhead allocation (B)Incremental expenses (C)
  • CLTV of Customers in the Campaign (D)
  • The cost of goods for all the units sold via the campaign (E)

Then, your ROI = (D-A-B-C-E)/A

The basic formula for calculating CLTV is the following: (Average Order Value) x (Number of Repeat Sales) x (Average Retention Time)

For example, if you run a gymnasium where customers pay Rs 2000 per month and the average time that a person remains a customer in your gym is 2 years. Then the lifetime value of each customer is (according to the formula above):

Rupees 2,000 per month x 12 months x 2 years = Rupees 24,000. This means each customer is worth a lifetime value of Rupees 24,000.

If your campaign reporting depicts good results, then you can think about investing further. But the thumb rule is that the ROI usually declines with a wider reach to a huge, scattered audience. Hence, an incremental ROI projection is the best way to strategize your investment and optimize the campaign budget.

  • Use the seamless campaign reporting tools that help you determine ROI effectively to pivot your campaign reporting -Google analytics/ AdWords to calculate the organic traffic and the success of online campaigns, CRM software such as HubSpot and Salesforce for streamlining the level of engagement and accumulating crucial customer data and call tracking to measure the lead phone calls and conversions.

The money you invest today impacts the future of your organisation. If you are not determining your ROI accurately in your campaign reporting, you are most probably shooting in the dark trying to optimize your campaign budget for campaign optimization and freeze your campaign spend in tandem with your business goals. You need to get this right to stay in the game.

Drive better results by understanding customer data