What Is ROI?
ROI, or return on investment, in marketing terms, is defined by how a company’s marketing programs and campaigns are generating revenue for the business. Marketing ROI is measured by comparing the overall spending on marketing campaigns against the revenue generated by those campaigns.
The simplest way to calculate marketing ROI is to use the following formula:
(Return – Investment)/Investment
It should be remembered that the ideal rule of thumb for marketing ROI typically hovers around a 5:1 ratio. On the other hand, exceptional marketing ROI is considered to have a 10:1 ratio. However, a ratio below 2:1 is not considered profitable since it means the company is only breaking even.
Why Does ROI matter?
Since you already know the basics of marketing ROI, the following are some key considerations for why measuring ROI matters for a business:
- Identifies Effective Digital Marketing Strategies: When marketing ROI is calculated, businesses can look into which digital marketing strategies work for them and which are not. As a result, companies can discover the key areas for driving sales. Thus, by obtaining such information, businesses can revamp their advertising campaigns for better results.
- Helps In Better Decision-Making: When a company calculates its marketing ROI, it learns which strategies work and which do not. Such information helps in the efficient spending of the marketing budget. For instance, you may find that your social media advertising campaign has an ROI of 2:1 while that of PPC (pay-per-click) advertising is 5:1. Since social media marketing is not working properly for your advertising strategy, you can either decide to redirect funds to PPC advertising or use more funds to streamline your social media advertising strategy.
- Compares Marketing Strategies To The Competition: By measuring marketing ROI, businesses can see how they compare to their competitors and the industry. Doing so can open up new possibilities for improvements, which can ultimately help in driving enhanced results for their marketing channels.
How Can Marketers Make the Most of ROI?
There are a lot of different parts to a successful marketing campaign, and it can take time to know where to allocate your resources for the best return on investment (ROI). That is why having a solid understanding of ROI and how it can be used to inform your marketing decisions is important.
One of the best ways to maximize ROI is to track and measure the results of your campaigns so that you can see which strategies are working and which are not. Additionally, you should always test new ideas and try new things to see what works best for your business. By staying diligent and always looking for ways to improve, you can ensure your marketing campaigns are as effective as possible.