Marketing ROI: What it is? Why it’s important? How do you calculate it? What does it looks like in practice?
What is Marketing ROI?
Marketing ROI (return on investment) measures marketing initiatives’ key metrics like profit, revenue growth, net revenue retention (NRR), leads, and more. Calculating the return on marketing investment enables organizations to measure the success of specific marketing tactics and campaigns.
Small businesses have fewer cash reserves and tighter budgets than enterprises, so it’s even more important to track marketing spend ROI. It also helps marketing teams and business owners pinpoint the most effective tactics so they can prioritize the highest impact marketing spend.
Why do I Need to Track my Marketing ROI?
Some small business owners may ask why it’s important to track marketing ROI, noting improvising and seeing what happens is a viable solution.
The short answer: it’s not viable if you want your marketing to be effective. Understanding your marketing initiatives’ ROI can help you:
- Measure the success of specific campaigns – Without knowing if a campaign brought in revenue, it’s difficult to discern whether it’s worth running a similar one in the future
- Define baselines for future tracking – The data from tracking ROI can help you compare the success of different tactics over time
- Divvy up marketing budgets – Knowing which tactics are most effective will help you know how to distribute your marketing dollars (i.e., choose your projects) in the future
- Justify marketing spending – If you need to justify the marketing budget, marketing ROI is an impactful data point
- Understand your audience – Seeing which marketing campaigns are most effective can inform you on your audience’s wants and the messaging that they receive
How to Calculate Marketing ROI
The easiest way is to calculate your marketing ROI is to compare your revenue received to your marketing spend:
(Revenue − Investment) / Investment
As an example, if you spend $1,000 on a campaign and generate $4,000 in revenue from it, the ROI calculation would be as follows:
($4,000 − $1,000) / $1,000 ＝ 3
Multiply this number by 100 to get your marketing ROI: 300%. You can also show this as a ratio (3:1).
Setting a Time Frame for Marketing ROI Calculations
You’ll need to set a time frame for gathering data in order to calculate the marketing ROI. For instance, if you want to find out the ROI on your most recent marketing campaign, you need to give it sufficient time to be seen by potential customers before trying to gauge the ROI. Consistency is key, so make sure any data points you use are coming from the same business cycle.
What is a Good Marketing ROI?
The typical guidance for a “good” marketing ROI is a 5:1 ratio (500%). In other words, you make $5 in attributed revenue for every $1 spent on that marketing campaign.
The breakeven ROI will depend on your specific business. If your costs and overhead are less than 50% of the sales price of your goods or services, you might be profitable at a lower ROI. When trying to determine what “good” (or at least break even) looks like for your business, consider overhead, profit margins, and unique aspects of your industry that might impact the overall cost of your product relative to your return.
Pay-Per-Click (PPC) Campaigns
PPC campaigns – like Google or Facebook ads – involve paying a provider based on how many user clicks your ad receives, not whether it results in a conversion or sale. According to Google, advertisers achieve an average 8:1 ROI on Google Ads spend, but others estimate it as 2:1 on average.
Email is still one of the most popular and effective marketing tools, especially for small businesses. Since the cost of email marketing is fairly low, the ROI can be significant. One study found that email drives a marketing ROI of 36:1 ($36 for every $1 spent), the highest of any marketing channel.
Social Media (Paid)
While it’s free to own and operate most social media accounts, there are a variety of paid options that marketers use to reach their audience on platforms like Facebook, Instagram, TikTok, and Twitter. Paid marketing tactics include boosting posts, running ads, or paying influencers to promote your product (although this is an indirect method, as the influencer receives your marketing spend, not the social media platform).
The ROI on paid social media campaigns varies widely depending on the platform, tactic, audience, and your specific business. However, we know business owners are using social media: for example, 94% of marketers use Facebook in their campaigns.
Get Help Maximizing your Marketing ROI with Breef and NEWITY
We know you want your small business to reach its full potential, and you likely know marketing can play a key role in making that happen.
If you aren’t sure where to start with setting up marketing initiatives that will maximize ROI, NEWITY + Breef can help you find the right agency for your exact marketing needs.
NEWITY’s goal is to provide members with direct access to powerful business solutions. Breef’s project planning, personalized marketing agency proposals, and contract management can quickly help you turn your marketing ideas into reality.
Get started with a new marketing project today.