Marketers know a business can’t make a sizable profit unless they gather data. Today, data is more valuable than most other assets, which is why there’s a rise in cybercriminal activity as companies move toward more data-driven decision-making. However, categorizing and assessing incoming data is a monumental task that small businesses and solopreneurs might find taxing — even larger companies have trouble allocating resources for accurate oversight. It leads many to ask, “What is marketing ROI?”
Is it worth the time to sink to discover the nitty-gritty details of what advertising methods work, or should businesses keep trying without a particular direction?
What Is Marketing ROI?
Marketing return on investment (ROI) refers to discovering if marketing efforts impact revenue in a business for the better. It can refer to any marketing strategy on any scale for any size business, so asking “What is marketing ROI” can sometimes be a complex question. There is no point in spending countless hours and funds on marketing that doesn’t reach the right people or attach to people’s emotions.
Only some initiatives yield the desired results, but sometimes other projects make up for it 10 times over. It highlights why it is essential that businesses analyze marketing ROI on a campaign-by-campaign basis, or any frequency with a smaller window, instead of yearly, where analytics can muddle insight.
Marketers must make numerous decisions regarding company budgets — arguably, they are why a company stays afloat. So, putting money into an advertising campaign is a high-stakes endeavor that teams must heavily weigh on to justify market spending. Spending money on new camera equipment for short-form video content or employee wages to do a brand redesign doesn’t see an immediate impact on stakeholders, so measuring marketing ROI helps guide people outside of the department. One decision could make or break a company’s resilience, especially in small businesses.
Ideally, businesses should achieve a 5:1 marketing ROI ratio. Anything less could be breaching into business losses or campaigns that need to gain more traction to warrant the investment. Continued failed projects could send departments into a frenzy as administrative staff and management lose faith in competency or value.
How Do Companies Measure Marketing ROI?
Distilling this answer into an equation is possible, but sometimes it glazes over essential facts about a marketing campaign. Many say it’s marketing expenses subtracted from sales growth. However, this probably isn’t the most accurate representation. Departments should also consider the cost of production and delivery and net profits. Different companies will consider varied expenses influencing the marketing ROI, such as creative investments or overhead.
Perhaps every expense has a dollar sign attached to it, but some weigh more than others in terms of effort or meaning. One company could see these influences as intense, while others dismiss them entirely. Yet, the standard for simple ROI is revenue minus investment, divided by investment equals ROI.
Meaning everywhere will measure marketing ROI on varied scales despite there being a universal understanding of what makes it tangible.
For example, a marketing campaign could use geotargeting on TikTok to spread brand awareness. With this broad objective, it’s not sure which subsequent sales are attributable to that ad project.
Brands could take additional steps by surveying customers on how they stumbled upon the brand or what made them decide to buy. However, this isn’t always accurate or reliable enough to get enough information to solidify marketing understanding. So in this example, companies have to find a way to determine if focusing on brand awareness helped the company profit enough during its run.
They may start by looking at month-over-month sales. They may want to look at customer lifetime value (CLV). How much will that customer bring to your company past their initial purchase? If companies have multiple revenue streams, such as a brick-and-mortar store and a digital storefront, teams must analyze both and notice trends and anomalies.
What Are the Challenges in Applying ROI?
You can understand how measuring marketing ROI is the first challenge because of how many personal choices and metrics could go into it. CMOs want answers, and departments give them shrugged shoulders because of all of the variables. However, this is only an umbrella into the other barriers that can prevent companies from reading the efficacy of their marketing techniques.
Apart from muddled mathematics, numerous influences impact ROI that render some marketing campaigns more ineffective:
- Ad blockers
- Inadequate staff expertise in data analytics and gathering
- Crawler numbness to banner ads
- Outdated collection technology and techniques
- Misconstruing KPIs with overall business objectives
- Wasted money on irrelevant target audiences
- Ads not optimized for mobile and/or desktop
These qualities, and more, influence the ROI at the end of the day. Unfortunately, the most intense challenge facing teams is patience. Measuring a campaign wave accurately with enough data can take months or even a whole year. By then, you’ve either lost out on tons of money or found the calculator numbers make you smile.
That waiting game could cause more stress on marketing teams that some don’t even want to go through, and they would rather just wing marketing plans and see what sticks at the time. Some companies have more disposable income than others, but advertising always has room to refine itself. Luckily, there are ways to overcome these challenges for more guaranteed success.
How Can Companies Start Researching for a High ROI?
Obtaining marketing data helps inform departments on how to allocate funds. Sometimes, a traditional billboard is smarter than a LinkedIn video campaign. Word of mouth is viable, so instead of creating stunning graphics, perhaps conversating on Discord servers and Facebook groups is a more valiant display of marketing. Companies can’t know where to place their energy until they do some research — internally and externally.
They can start by performing market research on B2B competitors. What are their consistent marketing strategies, and how are their profits looking? Have they found a rhythm that works that can translate to your business structure? It’s equally essential to see what companies aren’t performing to their standards. What company ads do you notice or see less frequently? Do some names appear to have more standing and brand loyalty than others?
After collecting that information, businesses can look inside their windows for even more fruitful findings. The key to unraveling this is understanding the target audience. Then, marketing funds are more curated to people who are more likely to convert. Customer research strategies like customer segmentation provide invaluable insights into demographics and purchasing motivations that could refine a brand’s image and voice for more appropriate and convincing communications.
Process discovery and automation can also increase ROI by streamlining operational procedures. Perhaps there are processes in the marketing and advertising departments that are wasting money to start with. How many channels do people have to go through to communicate with people? How long does approval take? These are the indirect influences that can impact ROI because all of this goes into whatever equations your department chooses to adhere to.
Using Marketing ROI to Set New Standards
Determining whether or not marketing has a high return on investment is practical financially while carrying other benefits from lessons learned. Experimenting with advertising tactics allows companies to create personable, unique advertisements that convert leads every time. Seeing the variances in marketing ROI will make companies waste their time and resources less while paying more attention to their audience’s wants and needs.