Marketing campaigns can be as expensive as they are unpredictable. Marketers tend to look at their target demographic as a static variable that behaves consistently. The truth is, we’re impulsive and arbitrary as often as we aren’t. Consequently, marketing campaigns are a risky business, and procuring a positive return on investment (ROI) is far from certain.
In this article, we’ll take an in-depth look at how your marketing campaign is impacting your bottom line and how to determine the outcome.
How to Calculate Simple ROI
To calculate the most basic form of ROI you need to subtract the marketing costs from the current value of the investment, or the sales growth, and divide it by the cost of investment. Multiplying the resulting figure by 100 will give you the percentage.
(Current Value of Investment – Cost of Investment) / Cost of Investment x 100 = ROI %
Example: (($500 – $50) / $50) x 100 = 900%
In this example, the current value of the investment grew by $500 during a marketing campaign, which cost $50. The resulting ROI is 900%.
An ROI of 900% would be incredible for any business, regardless of the numbers involved.
However, in the real world, it’s not that simple. Navigating variables beyond your control and accounting for changes in market sentiment can greatly affect your ROI. Your own assumptions regarding the fairest calculations can also influence the end result.
How to Calculate Campaign Related ROI
This is where things get slightly tricky. Calculating simple ROI relies on the assumption that your business’ growth throughout the campaign’s duration can be directly attributed to the marketing campaign. This is a farfetched assumption and can only be true if your business is totally stagnant, with no profit, loss or other external costs for an extended period of time.
This is why it’s important to have comparisons when calculating the campaign attributable ROI. The best way to do this would be to conduct a deep-dive into the numbers of your business. A 12-month period would be a good place to start. If in the 12-month lead up to the start of your marketing campaign, you discover that your business saw organic growth of 5% each month, you should strip this from campaign attributable ROI.
Here’s how your calculation should look:
(Current value of investment – Organic Sales Growth – Cost of Investment) / Cost of Investment x 100 = ROI %
Example: (($500 – $25 – $50) / $50 x 100 = 850%
ROI from the perspective of a company that is losing sales will look slightly different. Let’s say your small business was losing $500 each month in the 12-month period leading up to your $250 marketing campaign. Not great. However, after the campaign commenced, your business only lost $200 that month. Now you should focus on the $300 that you avoided losing in your calculation.
Your calculation should look like this:
(($300 – $250) / $250 x 100 = 20%
Despite continuing to lose sales, your business is doing so at a slower rate. Mitigating losses show that your marketing campaign is having a positive effect after 12-months of consistent and continuous loss.
External Factors to Consider
Calculating the ROI of a marketing campaign is not an exact science on account of a variety of conflicting assumptions that can result in multiple outcomes. Different interpretations are necessary as they can be quite subjective. For example changes in policy, regulatory environment and macro environment – there are so many factors that can influence performance.
The initial month of a marketing campaign is most likely to display low numbers. Don’t worry though, a campaign is a cumulative effort that can take time to permeate a targeted market or demographic. The subsequent months should show more favourable numbers, which are likely to increase gradually over time. Expecting instant results will only lead to disappointment.
Brand awareness in the form of mentions, social media likes & follows and the campaign’s content output rate. These soft metrics can be utilised by a digital marketing agency to appease results-driven clients that need some form of tangible ‘success’. However, as there is no feasible way to measure the monetary value of these metrics, it would be wise to think of them as a campaign by-product rather than its core.
An increase in lead generation can also be the overarching goal of a marketing campaign. If this is the case, fiscal policy should be set in place beforehand so you can quickly and easily devise the monetary value by multiplying the growth in leads by your typical conversion rate.
Knowing how to measure the results of your marketing efforts is essential to the growth and sustainability of your business. It’s easy to get lost in a torrent of metrics that ultimately don’t affect your bottom line, this is why it’s crucial to familiarise yourself with the fundamentals of ROI. Being able to accurately, or even roughly, put a figure on work that is often ambiguous and time-consuming will give you a good platform for what is and isn’t working for you.