How to measure your marketing ROI accurately

Measuring the contribution that a given marketing program has on revenue and profits is the holy grail of marketing measurement. 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.

Why calculating marketing ROI is important?

• 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.

Determining your Marketing ROI is a different game altogether. 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.

Each method on our list will give you a clear understanding of your customer value data but this additional insight also comes with the additional complexity of data. And that is why most organizations begin their process of ROI Measurement with the first and second methodologies, and then start to experiment with other approaches as they grow up the maturity curve. According to The Lenskold Group / eMedia Lead Generation Marketing ROI Study, almost 2/3 of companies use either no tracking or basic single attribution.

Here is the highlight on each of the methodologies:

Single Attribution (First touch or the Last Touch):

Pros of single attribution method:

• Easy to implement and low cost
• Provides good insight into the early stages of the revenue cycle
• Works well when most investments are made in lead generation instead of lead nurturing
• Gives straightforward insight into lead metrics

Cons of a single attribution method:

• Doesn’t account for the influence of subsequent touches and that is why insights are directional at best
• Attributes too much credit to lead generation programs and not enough to nurturing
• Hard to account for quality until the deal closes

Sometime your marketing investment may not pay off and that is where this method fails. And at those times your real effective marketing program may go unseen.

This is a marketing ROI measurement program that bias towards short-term gains instead of overbuilding true long-term value. This applies across all industries, but its impact is especially acute in companies with considered purchase products and long revenue cycles.

This helps to make revenue cycle projections. By adding revenue cycle projections to a first touch single attribution, you can gain deeper insight into the long-term impacts of your programs.

Multi-touch attribution:

• How to Implement Multi-Touch Attribution? Start with the action you want to analyze and start working backward to identify each significant touchpoint, but make sure you account for only the touchpoints that occurred before the action was taken.

Pros of multi-touch attribution:

• Incorporates lead-nurturing touchpoints
• Especially useful for long revenue cycles with many touchpoints
• Focuses on all contacts associated with a deal, not just the first or last

Cons of multi-touch attribution:

• Assumptions involved may add bias to the analysis
• Lacks insight into the synergy of tactics, no correlations or connections
• Risk of over-crediting touchpoints, especially if you weight all touchpoints equally

A great way to measure the true impact of a particular marketing program is to test the effectiveness of that initiative against a well-formed control group.

Here’s how it works. With test and control groups, you apply the program or treatment to the one that you want to measure and not to another homogeneous part of that group.  All other factors being equal, you’ll be able to attribute any difference in buyer behavior between the two groups to the particular change.

You can also test almost anything but remember applying it to anything without a proper plan will result in a huge expense.

• Programs and tactics- Did the ad have an impact?
• Messages- Which message and/or copy resonated the most with your target audience?
• Contact frequency- How often should we send an email?
• Spending levels- What happens if we double investment in social banned ads?

It also makes it possible to measure combinations of touchpoints rather than just one. For example, you can measure an entire lead naturing email campaign with another to test its effectiveness. To measure multiple campaigns, you can also use multivariate testing methodologies.

Pros of A/B Testing:

• Reveals the true impact of a marketing program
• Can measure almost anything with the right test
• Relatively low cost if you can design a decent control group

Cons of multi-touch attribution:

• Focused on specific tactics; can’t report on the effectiveness of all programs
• Almost everything can be tested, but it’s expensive to test everything
• Only works when you’ve incorporated variance to support program measurement

Marketing Mix Modelling:

For example, Company X marketing ROI can be the result of = Search + Display + Email + Tradeshows

But the selection of these independent marketing variables can be a complicated process. Possible factors include:

• Pricing
• Promotion/ advertising
• Product
• Place
• Distribution
• Sales
• Competitive moves
• The economy

Pros of marketing mix modeling:

• Very accurate
• Incorporates the impact of all programs and even external factors
• Gives insight into program effectiveness and efficiency

Cons of marketing mix modeling:

• Can be costly to collect all the required historical data
• You need a sophisticated analytical skill
• Focus on short-term sales changes can undervalue longer-term brand building activities

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Measuring 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 skeptical investors, the gross profit is replaced by the Customer Lifetime Value (CLTV) which provides a good insight on 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)

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.

According to an MMA/Forrester/ANA study, 87% of senior marketers did not feel confident in their ability to impact the sales forecast of their programs. This means you can be part of the 13% who get it right!

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.

Also Read:

• How to optimize your Campaign Reporting practices at scale
• How to calculate the ROI of your CRO program