Although marketing return on investment (ROI) isn’t an exact science, it’s still highly measurable and key to understanding the efficiency and performance of marketing campaigns.
Calculating the return on investment (ROI) of your marketing campaigns and improve performance allows you to understand how well your efforts are converting visitors into customers. To put it simply, ROI is how you measure the efficiency of content and/or ads you’ve paid for.
So, what exactly is marketing ROI and how do you measure it?
We’ll break it down here by explaining:
- What is ROI?
- How do you calculate marketing ROI?
- How to improve marketing ROI
- What else should you measure to determine marketing success?
Let’s dive in!
Table of contents
What is Marketing ROI?
Return on investment (ROI) is a ratio that shows how much profit you’ve gained or loss you’ve endured when measuring the effectiveness of an investment.
Marketing ROI is specific to the amount you invest in marketing campaigns. That can include social media advertising, paid media or PPC, content creation, email marketing, content syndication, and other forms of digital strategy.
How is ROI used?
Understanding marketing ROI allows businesses to make data-backed decisions when creating or refining a marketing strategy.
By measuring marketing ROI, eCommerce merchants can properly allocate resources, manage a marketing budget, understand key areas of marketing opportunity, monitor the impact of individual campaigns, and compare and contrast efforts with that of competitors.
For instance, an eCommerce merchant can calculate ROI to determine whether the amount of sales generated from an ad campaign exceeded expectations or fell short. Although ROI doesn’t eliminate risk, it can provide a baseline for making future decisions.
How Do You Calculate Marketing ROI?
Marketing ROI can be determined by a number of factors. What you’ll need is:
- The cost of your investment
- The net profit of your campaign efforts (sales minus cost)
Here is a tried-and-true formula to calculate marketing ROI:
(Sales Growth – Marketing Cost) / Marketing Cost = Marketing ROI
According to Forbes, another way to look at this is to “divide the amount you earned from an investment — often called the net profit — by the cost of the investment, and multiply that by 100.”
ROI = (Net Profit / Cost of Investment) x 100
HubSpot made it even easier by putting together this free, automated ROI calculator.
This calculator takes into account five factors of your marketing campaign and drafts an accurate ROI for your marketing efforts. The snapshot below offers a glimpse at this analysis tool.
For further explanation of marketing ROI, check out this video by LinkedIn Learning for a quick overview of how to measure the ROI of your content marketing.
How to Improve Marketing ROI
Marketing is all about experimenting, testing, measuring, and adjusting. There’s no end to that process, especially in an ever-evolving industry like eCommerce.
Tips for improving ROI of your marketing campaigns.
1. Create a digital strategy based on clear and measurable goals
Clearly define your business goals in order to determine benchmarks and KPIs, then establish how you’ll go about measuring results.
2. Develop a strategic budget
It’s one thing to measure the spend on an ad, but you need to also take into account fixed costs and fees not accounted for by your specific campaign.
3. Leverage a Marketing Analytics Agency
When you use the help of an agency, you’re able to tap into a wider array of analytics tools than your team might be skilled in using. Here at Shero, for instance, we offer analytics services as a way to gather the data to ensure your online store reaches your target market and provides them with an optimal customer experience. Contact us today for assistance with marketing ROI or any of the following services:
- Cost per lead
- Cost per acquisition
- Channel performance
- Funnel conversion rate
- Customer lifetime value (CLV)
- Brand awareness
- Organic performance
- Return on ad spend (ROAS)
- Inbound marketing ROI
- Customer retention
- Marketing generated SQLs
What else should you measure to determine marketing ROI?
The ROI calculations mentioned earlier can provide valuable data. In addition, the following metrics can help you determine the efficiency of your marketing campaigns.
1. Reach
This refers to how many people have seen your content, such as blog post visits, social media views, and ad views.
2. Impressions
Impressions are the number of times your content has been displayed. One way to remember the difference between reach and impressions: Reach measures people; impressions measures screens. Keep in mind that this number doesn’t always include unique impressions.
3. Site Visits
Google Analytics remains one of the best free tools for measuring site visits — how many total and unique visitors your site receives — to track the performance of your campaigns.
4. Leads
Depending on what you sell, you can track leads by pinpointing your goals and KPIs, analyzing the cost per conversion for those who make a purchase, and build a strategy around your most effective channels and verticals.
5. Conversion Rates
When calculating the conversion rate of the products your eCommerce store sells, the number of sales divided by the total number of visitors and multiply by 100 to reach your conversion rate percentage. For more information about optimizing your conversion rate, contact us! It’s one of the many exciting eCommerce Growth Services we offer.
6. Customer Lifetime Value (CLV)
What is customer lifetime value (CLV) and how do you measure it? CLV refers to the amount of business that merchants can expect to earn from the average customer. It can be determined by simple formula: Average Purchase Size x Number of Transactions x Retention Period
7. Cost Per Lead (CPL)
To determine CPL, divide your total marketing spend by the total number of new leads.
8. Cost Per Acquisition (CPA)
Similar to CPL, divide your total spend by the total number of new customers.
Now that you understand marketing ROI, you should have a better idea of determining the success of your marketing efforts.
If calculations and analytics aren’t your strengths, contact us so that we can figure out the best way to develop a strategic plan for your brand.
Gentian, CSO and co-founder of Shero Commerce, guides the company and client digital strategies. He's an expert in technical SEO, Inbound Marketing, and eCommerce strategy.
