Measuring your marketing ROI
Whether you work for a large or small business, or whether your business is established or in startup phase, marketing continues to be seen as an overhead – a cost.
And yet, marketers have at their fingertips, increasingly powerful technologies that connect revenue with data and programs with sales.
But which data points are the most useful? How can that data make better use of your marketing budget and improve revenue? The answer is you need to integrate your marketing plans with your accounting metrics such as revenue and profit margin.
What about soft metrics like brand awareness, preference, reach and search rankings, I hear you ask?
These all have their place within the marketing department, but if your goal is to move marketing from the sideline to the main game, you need to speak not in the language of marketers, but in the language of the CFO. You need to translate marketing return of investment (ROI) to your bottom line. It’s time to talk pipeline, revenue and profit. And while this is important for any business, it’s absolutely vital for a startup.
To tie your marketing plans to accounting metrics, start with the following:
1. Calculate the return on marketing investment
Rather than considering your “spending”, start to characterise it as an “investment.” For each investment, determine the results as they impact key elements of your profit and loss — how much of your marketing can be attributed to growth in the sales pipeline? How much in direct sales? How many new leads? Then determine the cost of marketing — in resources, purchasing and media. Track and measure all of these elements. Measuring the return on your marketing investment gives you a better outcome over time.
2. Set targets and goals
It is important to have goals for all aspects of your marketing, but it’s equally important to establish time frames within which outcomes will be achieved. Setting targets — an outcome with an end date — will sharpen your attention and marketing focus. If you’re starting a business, it can help align your marketing with development sprints.
3. Measure incremental sales
To measure marketing’s impact on sales, you will need to do your homework. You will need to understand the business as usual volume of sales that are expected over the duration of your campaign. Then you’ll need to measure the additional sales that occur as a result of your marketing efforts. You can start with a simple formula — the reach of your program divided by conversions. So, if your program reaches 50,000 and your conversion rate is 1.5 percent, your program will have generated 750 incremental sales.
4. Calculate revenue and margin
Take measurement a step further and calculate the revenue increases and net profits that result from your incremental sales. To do so, you will need to know the revenue produced by each sale and the average margin. If you expect $100 in revenue for each sale, your campaign will have generated $75,000. At a 25 percent margin, your gross profit will be $18,750.
In this scenario, presuming a marketing expense of $15,000, your return on marketing investment would be $3,750, or 25 percent.
Having this kind of information at your fingertips will change not only the way that you market, but the way your marketing is perceived.