Marketing campaigns are investments. And like any smart investment, they need to be measured, monitored and compared to other investments to ensure you’re spending your money wisely.
Unfortunately, far too many businesses fail to make use of this powerful practice — making it in many ways a “secret weapon.”
Return on investment (ROI) is a measure of the profit earned from each investment. Like the “return” you earn on your portfolio or bank account, it’s calculated as a percentage. In simple terms, the calculation is:
(Return – Investment)
Investment
It’s typically expressed as a percentage, so multiple the result by 100.
ROI calculations for marketing campaigns can be complex — you may have many variables on both the profit side and the investment (cost) side. But understanding the formula is essential if you need to produce the best possible results with your marketing investments.
For marketing ROI, the tricky part is determining what constitutes your “return,” and what is your true investment. For example, different marketers might consider the following for return:
- Total revenue generated for a campaign (or gross receipts or turnover, depending on your organization type and location, which is simply the top line sales generated from the campaign)
- Gross profit, or a gross profit estimate, which is revenue minus the cost of goods to produce/deliver a product or service. Many marketers simply use the company’s COG percentage (say 30%) and deduct it from the total revenue
- Net profit, which is gross profit minus expenses.
On the investment side, it’s easy for marketers to input the media costs as the investment. But what other costs should you include? To execute your campaign, you might have:
- Creative costs
- Technology costs (such as email platforms, website coding, etc)
- Printing costs
- Management time
- Cost of sales expense
Basic Marketing ROI Formulas
One basic formula uses the gross profit for units sold in the campaign and the marketing investment for the campaign: [click to continue…]
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