Why Understanding Marketing ROI is Important

For any kind of business there are many tools that can be used to calculate projections in expenses, revenue, investments, growth, and many other aspects of the bookkeeping and budgeting process. One of the most useful tools for determining marketing expenses and the return on those costs in the form of a broadened company audience and income is a “return on investment” (ROI) calculation strategy. ROI calculations can be applied to business operations outside of the marketing sphere, but because marketing costs and successes can be difficult to put on paper, an effective marketing ROI measurement system is often the best solution for building marketing budgets. When it comes to determining if your search engine optimization (SEO) or other online marketing costs are worth it, which aspects are working the most effectively, and how long expenses take to build a return, understanding how to calculate your marketing ROI is key. MLT Group offers guidance and support for businesses developing digital and social media marketing strategies. Our goal is to help you boost your ROI and implement long term, smart marketing performance indicators.

Simply put, ROI is a tool that is used to determine the profitability of a marketing expense. For example, it can be applied to see if the cost of an online advertisement is justified by the growth of your company’s customer base when new users are led to your business through that ad.

These ROI calculations can vary depending on the marketing strategy and your goals as a company, but they are all used in the same way to take the guessing out of that part of your business.

Taking Out the Guesswork

Unlike calculating profit, baseline operational costs, inventory, and other simpler parts of a company budget, it can be difficult to predict the impact of new marketing investments. Likewise, predicting which ventures are going to be the most effective and how potential customers will interact with marketing endeavors can be tricky. Because of the many factors in a marketing plan, it can involve a lot of guesswork. Implementing effective marketing ROI will significantly impact the guessing part of developing a marketing campaign.

ROI calculators measure conversion rates, traffic fluctuations, sales, followers, and overall engagement from customers and audience members and compare the revenue from all that engagement against the cost of each marketing strategy.

Because each marketing strategy can vary greatly in format and cost, it can be difficult to build a universal ROI calculator. The most effective way to use ROI calculators to determine which marketing techniques are returning your investments is to build multiple measurement systems that can be applied to each category of digital marketing.

Some companies, for example, designate different ROI calculators for the social media aspect of marketing, Google Ads, pay-per-click ads, blogs, SEO strategies, and other types of paid advertising. Understanding the basic format of most ROI calculators will help you learn to adapt different versions to begin measuring your investment efficacy.

How to Calculate It

One of the simplest ROI calculators measures the financial gain after an investment minus the cost of that investment. Then it divides that number with the cost of the investment. If an ad costs $50 and sales worth $100 can be traced back to customers that found your company through that ad, your calculator will look like this:

(100 – 50) / 50 = 1

On paper, you would have broken even on this investment.

This calculator is very simple, but it can be applied to help you make preliminary decisions about many kinds of investments. In reality there will be other costs involved in all investments. Even when purchasing a $50 ad, there are additional costs in the time spent making graphics and communicating with ad platforms. Additionally, even if that $100 in sales can be linked to the ad, complex factors like what was purchased, who the customers are, and where they are located can alter that number.

The type of investments also matters when building an ROI calculator. Is the investment a one-time fee or a recurring cost? Will that cost increase or decrease over time? Will a higher initial cost bring more ROI in the long term and vice versa? These are just some questions to consider when you build a calculator for specific marketing investments.

Even though ROI calculators for marketing can be challenging to build because of unpredictable factors and hidden expenses, there are many tools available to help you better determine starting points, measure patterns, and overall gain better footing for your marketing strategies. Some useful tools many of our clients use to target marketing ROI include:

● Google Analytics: Especially when paired with Google Ads, Google Analytics is a great tool for measuring traffic, digital ad campaigns, and SEO quality. This software system will gather data and organize information about your online audience. You can even build your own ROI system from the information Google Analytics provides.
● CRM Software: There are several sources for CRM (customer relationship management) software, such as Hubspot and Salesforce. CRM software is designed to keep track of customer interactions and information. This information can be gathered from each of your platforms separately or together in a single report.
● Call tracking: For both digital and off-line marketing strategies, call tracking software can gather information about phone calls and conversion rates. This provides data on which of your campaigns led to phone interactions with customers that, in turn, led to a sale.

No matter how you build your ROI calculation tactics, there might be some trial and error, but an effective system will provide multiple benefits, and it’s an important part of a successful marketing department in today’s digital world.

Marketing ROI Benefits

Implementing an effective marketing ROI calculator will give you valuable information about your efforts, including:

● Which digital platforms are bringing the most traffic to your site and leading to the most conversions
● When you should spend money on a campaign versus utilizing free marketing tools
● Where you should spend money and which third parties work best for your company
● Which marketing strategies to eliminate
● Who your customer base is, including their age range, location, spending patterns, and other demographics
● How customers interact with different marketing strategies
● When and why that interaction can shift over time
● How to adapt to those shifts in customer behavior
● What tools work best for your brand and company

In addition to advertising, SEO tools, and marketing overall, your ROI calculations can be used to build your company in other ways. It may give you information that will guide you in rebuilding your website, generating graphics and media, hiring new employees, increasing the diversity of your products, improving your business’s accessibility, expanding to a global audience, consolidating debt, and much more.

In many ways, ROI calculations for your marketing strategies are not just an important part of building your brand and saving money, they are often a vital aspect of being able to adapt to the rapidly changing conditions of the digital and physical consumer world.

To learn more about marketing ROI and how you can integrate it into your digital and social media marketing strategies with the help of MLT Group, contact us at (507) 281-3490, sales@mltgroup.com, or online today.