Best Ways to Measure and Increase Marketing ROI
Last updated on June 25, 2020
Calculating Return on Investment (ROI), during the marketing planning process is critical. Aside from the fiduciary reasoning, ROI is a tool that you should always utilize. It helps prioritize marketing investments and base that investment on actual results, as it relates to the campaign goal.
Post-COVID-19, many marketing budgets are in decline or have been cut completely, therefore measuring and proving marketing ROI is even more critical. The annual Gartner CMO Spend Survey 2019-2020 shows a slight decline in top-line marketing spend to 10.5% of revenue, a level not seen since 2014. Throughout the past two surveys, budgets in North America and the U.K. have been hovering at just over 11% of company revenue. The previous five surveys had the mean average budget fixed at 11% percent.
At the most basic level, ROI compares the amount of money you spend on a project to the amount of revenue you gain from it. Therefore, measuring and increasing marketing ROI needs to be a marketing best practice. However, only one in four marketers are highly confident they can quantify ROI, according to a Nielsen report.
The reason for this low percentage is based on trying to apply a static calculation into a very flexible and dynamic environment. The number, size and frequency of marketing initiatives—based on changes of target audience, pricing and economic landscapes—require a multi-faceted ROI calculation.
Calculating the ROI
The ROI calculation for marketing initiatives has to be as flexible and dynamic, as marketing itself. You must calculate the ROI on a corporate aggregate marketing spend, as a whole. However, it’s important to drill down further into ROI for incremental investments—which is the calculation of additional returns/additional spend. You must also ask, “what is my expected return on just this incremental investment?”
The decision making doesn’t just stop there. You must look at the ROI, based on an aggregate campaign. Independent of this analysis, answers the question, “do I invest in Campaign X and Campaign Y, or either X or Y?” For this reasoning, you must clearly define the formula and the elements that make up the formula.
When you’re determining how to calculate marketing ROI, define the elements that make up the investment. Here’s the marketing ROI formula:
This is then divisible by your total investment. Some businesses use various elements for the total investment calculation, that not only include the initial cost, but also long-term expense commitments and staff utilization, versus new hires (and/or other factors) calculated to the NPV (value of all future cash flows).
The marketing ROI benchmarks are the same, as any fixed investment benchmark. Defining a benchmark is paramount to how a business will measure the success of their marketing strategy.
To determine if the marketing strategy is successful, following is an ROI measurement process to consider:
- ROI benchmark
- Analysis of results
- Adjust strategy and/or assumptions
- Go back to the marketing ROI benchmark and determine what you might need to change
Here are the best ways to increase marketing ROI:
Build an integrated marketing communications campaign
Today, because of the many diverse platforms that are available, there’s no single marketing approach that will work better than building a successful integrated marketing communications campaign.
This traditional marketing method assures that your message is being delivered to your target audiences, regardless of how they interact with your brand—whether it’s through advertising, social media marketing, public relations or digital marketing. It also offers you the ability to outline a core message and highlight its unique selling proposition to an identified target market, with a tailored message, through various mediums.
Having a strong integration between the tactics used to build brand awareness, nurture prospects and close sales is one of the best ways to increase marketing ROI.
Make decisions based on sales impact
Give attention to the budget with a goal of making decisions that have a greater impact on sales and close rates. This begins by determining the marketing tactics, key messages and content that will best resonate with your target audience. Then, measure metrics comprising sales objectives i.e. customer/member retention), along with business results that encompass market share and revenue.
Maximize current customers spend
It’s easier and takes less time to maximize current customers’ spend by building customer loyalty and improving the customer experience. This will be especially important post-COVID-19 as businesses relaunch. Continue to communicate to your customers with empathy and let them know how you are keeping them and employees safe by adhering to new health and safety protocols. Roll out messaging that addresses your audiences’ concerns about safety, as well as new product and service offerings.
Improving customer loyalty is the easiest way to increase sales because those customers already know and trust you. Selling to current customers offers you an opportunity to cross-sell and upsell them on your other services—which will deliver excellent ROI.
Cross-selling and upselling are key. It’s 5-25 times more expensive to acquire a new customer, than it is to retain an existing one. When you do retain a customer, they’re more likely to spend extra and purchase more frequently. Also, you are 60-70% likely to sell to an existing customer, compared to the 5-20% likelihood of selling to a new prospect. If your business isn’t cross-selling and upselling, you’re not maximizing ROI.
Align sales and marketing activities with smart data
Sales and marketing departments need to align their marketing efforts to grow their business, in addition to building an audience. This includes having a strong content marketing strategy, as well as supporting and engaging customers with great content. This can range from blog posts to videos.
To achieve that, smart data is key. Businesses that utilize smart data in their content marketing effort will be successful in driving higher sales and marketing ROI. In fact, content marketing costs 62% less than traditional marketing and generates about three times as many leads. To boot, conversion rates are nearly six times higher for content marketing adopters than non-adopters.
Incorporate ROI into your marketing plan
When building your yearly marketing plan, include ROI. In my blog on marketing planning and creating a marketing budget to drive growth, I shared that the real secret to getting your marketing budget passed is to start with ROI and answer, “Why should this money be spent on marketing, as opposed to in other departments?” This could be a challenge for many marketers, as the Nielsen study reported.
It’s essential to financially address ROI calculations so you can provide a full picture of execution and the cost/profit because of those efforts. Ensure that you clearly define the measurables for success and that they are consistent across all tactics. In addition, they should align with the business goals—specifically marketing with sales, finance and product development.
Marketing is more measurable than ever before, thanks to technology that allows for more analysis of each tactic. When developing your marketing program, it’s a good idea to know your benchmarks for success. Also, be flexible and open when you’re walking through the process of result analysis. In order to have a successful return on marketing investment, know your industry, target audience and strategy. Then apply the relevant calculations to get an informative ROI.
Do you want to effectively measure and increase ROI for your marketing campaigns? Contact us today, to get the conversation started.