The Importance of Measuring ROI

It is more important than ever for marketers to determine the success of their marketing efforts. The budget investment organizations make in marketing programs and campaigns demand a return. It could be a soft dollar return like impressions or a hard dollar return like revenue, but all marketing activities should have a return component if you want future marketing investments to be considered.

At its core, ROI is the measurement of value that an investment provides, or the return gained relative to the price of the initial investment. In simpler terms, good ROI means that for every dollar that is put toward marketing efforts, the company gets more than a dollar back. A simple formula for measuring ROI is:

(Gain from Marketing Investment – Cost of Marketing Investment)
/Total Cost of Marketing Investment = Marketing ROI

Since return often means different things to different businesses, marketers must work with leadership to pick metrics that are relevant and important to the growth of their business. Typically, these leading metrics serve as markers of progress towards a sale, or key performance indicators (KPIs). The determination of these KPIs will be the measuring sticks for your efforts and should drive your activities.

For example, content-oriented businesses typically build their revenue models around audience size and engagement. For this reason, key leading and ROI metrics include: website visitors, growth in subscribers, app downloads, article shares and community engagements such as comments, shares, letters to the editor, and survey completions. Some may see those metrics as “soft dollar” returns, but those firms that define success by those KPIs know where they stand and can build their marketing strategies with those targets in mind.

If lead generation is your top priority, the most common ROI metrics are lead volume, lead quality, lead conversion rate, and closed business. These “hard dollar” factors can show how your marketing plans are directly impacting top-line growth in your business. It doesn’t mean that brand awareness doesn’t matter – it just shows you some of the criteria used to judge your success.

While there are industry benchmarks for ROI measurement, the best way to determine good ROI for your business it to look at your historical performance and see what your benchmarks should be. Track your leading and ROI metrics over time to identify fluctuations in your marketing performance as they happen. Can you drive more sales with less budget? Perhaps you can if you identify the channels that are underperforming for your business. Marketing ROI can vary greatly depending on market demand for your product or service, but it has never been more important.

If your business has never thought about marketing with a ROI mindset, take the lead and start building a model that demands a return, whatever that return may be. It will make you more focused on things that grow the business and not just the brand.