Measuring the return on investment (ROI) for a marketing campaign may seem like a daunting and complex task, especially if you’re new to advertising and analytics.
To help you, we’re going to take you through a few vital steps to ensure that you take every aspect into account when measuring ROI for your marketing campaigns and help you get to that bottom line successfully.
As an agency with years of industry experience and expertise in the marketing and advertising industry, we’ve helped clients calculate ROI more times than we can count! So let’s dive into the steps that are required to successfully measure your marketing ROI!
What is ROI or Return on Investment?
Return on investment (ROI) tells you how much money you have made as a result of your initial investment.
In the marketing industry, you would hope that the marketing budget you invested during your campaign results in a tangible return. This can be in the form of increased brand awareness, product recognition, leads, website visits and more.
It is important to note that in order to measure ROI, you’ll need to know your exact marketing objectives/goals before investing your initial marketing budget, or have someone on hand that can help you define your marketing goals. If this is something you’re wondering about, contact EMPIRE to find out how we can help you define your marketing goals better.
Benefits of understanding ROI
By understanding what marketing activities bring you the right kind of return on investment – you are well equipped to make smarter decisions when it comes to managing your marketing budget and achieving even better results!
Businesses are often caught in the trap of throwing way too much money at various forms of marketing and advertising hoping it will yield the desired results – without any concrete evidence to back up their theories.
By understanding your marketing ROI, you’ll be better equipped to make solid decisions that are measurable and tangible.
Challenges of measuring ROI
Whilst the importance of being able to measure advertising ROI is of extreme importance – that doesn’t mean that it comes without its challenges.
Measuring your ROI will depend on the length of your sales cycle, and at which point you choose to measure your ROI.
Every business is a little bit different – some have shorter sales cycles whilst others have longer sales cycle periods.
It is important to plan ahead, and to know at which point(s) to measure your return on investment based on when your sales cycle is coming to a close and you have all the data you need to make accurate calculations.
Choosing the right metric to assess the ROI for each marketing campaign can be tricky. Of course, at the end of the day it’s about revenue, however, each campaign you run may result in its own tangible ROI, depending on the marketing objective or goal.
Here it is important to determine which metric is the most vital element when it comes to assessing the results of your marketing strategies?
We’ll give you some examples:
- Increasing website traffic
- Increasing product sales
- Increasing enquiries for specific services or calls
- Encouraging purchases
- Obtaining leads, such as customer contact information
- Improving brand awareness (can be harder to measure)
How to calculate ROI using a formula
An overarching way to measure ROI is to compare your revenue to what your marketing expense was over a specified period of time. Here’s a standard formula to calculate ROI”
ROI = (Revenue – Investment) / Investment
Let’s dive into that equation a little deeper. Beauty Company A spent $5000 on marketing and advertising over a 1 year period. Within that year, they generated $10 000 in revenue. So this means Beauty A’s ROI calculation would look like this:
ROI = ($10 000 – $ 5000) / $5000
In this example, Beauty Company A’s marketing ROI was 100%!
Now, to be able to tell which one of your marketing or advertising avenues actually generated that revenue – you need to look at all channels individually.
A combination of analytics and attribution (more on this below) will let you know how consumers found your business and what led customers to take action, whether it was providing you with their customer information, generate purchases, visit your website, get signups, download apps and more.
Some rough guidelines for determining marketing spend investments
To determine an appropriate advertising spend you should know what the annual revenue of your business is. This is where a meeting with your CFO, or the higher level executive responsible for recording revenue is crucial.
By establishing your total estimated revenue, you have the first building block necessary to calculate your marketing spend.
Next up, we’re going to assess the company itself. It’s typically new companies that need to allocate more to their marketing budget to begin their journey of reaching their advertising objectives. New companies most commonly aim for increased brand awareness at this stage as more established companies already have an established brand, loyal customers and a good reputation.
A standard industry benchmark amount for new companies is that around 12% – 20% of your gross revenue should be allocated to run ads and improve your marketing. It might seem like a large amount, however, remember that you’re trying to bring in leads, create awareness and establish your brand in your market in the long run.
Established companies who already have brand loyalty, recognition and a regular consumer base, should aim at using around 6% – 12% of their gross revenue on marketing their brand, product or services. You can find out more about calculating your marketing spend comprehensively and accurately in our guide.
How to determine your ROI using attribution models
So now that you know how to tell what ROI your marketing spend had, let’s outline attribution as a concept.
Attribution refers to the process of giving weight to certain touch points along the buyer’s journey (your customer’s journey). While the pure revenue based ROI calculation above give a high level summary it is also important to understand where in the sales funnel and from which marketing channel the ROI was derived.
Let’s say Beauty Company A received a sale via their website. This may have come from an ad the customer saw on Instagram. The ad may have asked them to follow Beauty Company A’s Instagram page, and absorb their content over some time. The brand recognition of Beauty Company A and trust is earned over time and this eventually leads to a sale. This is essentially where attribution comes into play in the marketing industry.
These different behaviours associated with the prospective customer’s journey relate to how they view your landing pages and take action after seeing an online ad or physical promotion.
These behaviours can be mapped using attribution models. Each attribution model will influence how you measure your ROI and can be incredibly valuable in planning future marketing campaigns, and adjusting your sales funnel.
We’ll give an overview of nine different attribution models for measuring ROI below:
1. Single Attribution
Single attribution models allow you to give credit for ROI to either the first or last touch of the consumer in relation to a particular marketing channel. In the buyer’s journey cycle, which involves a myriad of touchpoints, this model attributes a specific marketing channel’s ROI based on whether or not it was that channel’s activity that led to the end result – in this case a sale.
Once again, Beauty Company A put out a blog post about their next big skin serum formulation. Using a first touch attribution model like this, the customer visited the blog, and according to this model, it’s the blog that resulted in the sale.
A lot of marketing professionals are not a fan of this model, as it leaves out so many touch points along the buyer journey. But, it is one of the easiest ways to calculate ROI.
2. Last-click attribution model
Last click attribution gives credit to the last interaction along your customer journey that resulted in their end action – essentially the final source that led them to reach your landing page on your website, download your app, sign up to your newsletter, and more.
What last-click attribution doesn’t consider is the first ad the user clicked, or what the kind of content they saw along the way. They may have followed you after seeing your ads a few times, but their end action might have only occurred a few days later or a few weeks later.
3. Position-based attribution model
The position-based attribution model places its emphasis on the first and last touchpoints of the user’s journey.
It considers the first touchpoint, such as a user experiencing a display ad (without converting). After viewing your ad it might be that the user saw more of your content at a later stage, and may have only clicked through to your landing page by viewing a targeted ad as part of one of your retargeting/remarketing campaigns.
4. Last non-direct click attribution model
Last non-direct click attribution model assesses the last source that wasn’t direct traffic to your final touchpoint. Essentially, this could be that someone viewed your Facebook ad from the day before and didn’t go on to take any action right then and there – but then they visited your website directly the next day and made a purchase.
In this situation, your ad would receive the credit of converting the customer.
5. Time-decay attribution model
The time decay attribution model weights its emphasis on the consecutive channels visited by the user up until they take action via your last touchpoint to satisfy your end goal.
Imagine this as a steadily increasing graph, with the least credit going to your first touchpoint and the most going to your last touchpoint before your user took action.
This model is great because it considers all of the interactions the user had with various components of your marketing campaign and/or brand touchpoints over time until they took action.
6. Last AdWords-click attribution model
This attribution model is specific to Google AdWords, and focuses on which keywords provide the most end traffic towards your online touchpoint, such as a Google Display Ad or Text Ad. This is the default attribution model used by Google AdWords.
7. Linear attribution model
In this case, the linear attribution model puts emphasis equally weighting each of the channels the user interacted with before taking action on your website.
It takes into account that the different ads and pieces of content the user experiences up until the buyer takes action. Each ad or piece of content is equally important in influencing the desired action of the end user.
9. Data-driven attribution (multi-touch attribution)
Data driven attribution relies on data collected during your prospective customer’s digital journey and carefully considers the analytics surrounding each touchpoint the customer encounters before making an end action.
While other attribution models may make assumptions, and place emphasis on one or two touch points along the user journey – the data driven model takes all aspects of the user journey into account.
Of course, this means having intricate tracking set up for each digital touchpoint along the user’s journey in order to track which ad or piece of content has made an impact in the buyer’s decision making process.
Hubspot gives a great overview on attribution through this video:
How to track ROI data?
Data, data and more data! No matter your attribution model, tracking your campaigns’ effectiveness, alongside which content types capture your target audience’s attention and result in conversions is imperative in determining your ROI.
By analysing particular metrics on your various marketing channels you’ll also have the ability to create more campaigns and content to meet your marketing objectives even faster in the future.
Tracking online marketing ROI
There are countless ways to track your online marketing activities and their impact on your marketing ROI.
A standard method is to use Google Analytics, a website tracking software that gives you a plethora of helpful information including where your users came from and the kinds of interactions a user had with your website.
Each online marketing platform also has their own set of analytics and performance tracking. For example, if you’re advertising on Facebook or Instagram, you’ll be able to deep-dive into your ad performance on Facebook’s Business Manager platform.
Tracking offline marketing ROI
Offline marketing ROI might seem like a tricky one to be able to track. However, if you’re running an outdoor advertising campaign, or a radio advertising campaign, perhaps you have a unique discount code or URL for use on your website to attribute that campaign to a sale on site.
Generally, a simpler indication that your campaign is working is determining whether you experienced a spike in traffic relative to the specific touch point that you’ve included as a driving point for prospective customers during a specific campaign period. Then, it is about monitoring the specific influential metrics surrounding that touchpoint, or the several touchpoints that you’ve chosen as part of your campaign.
Impact of measuring ROI
It all boils down to one thing. Is your marketing making you money?
The impact of measuring your ROI is useful in determining whether your marketing efforts are improving the way your business interacts with its target audience and secures relationships with new customers.
Measurement of key campaign analytics allows you to determine your marketing effectiveness during the initial period of your marketing campaign. This may allow you to forecast your marketing return on investment in the future, and what kind of results you can expect when your campaign draws to a close. Short term measurement of ROI allows you to test the waters on particular aspects of your campaign. Allowing you and your team to make certain tweaks to steer it in the direction of your marketing campaigns in order to generate solid end results.
Short term ROI measurement is ongoing – whereas it is the long term ROI measurement that will allow you to find marketing channels that provide your business beneficial ROI.
ROI is meant to inform your long-term marketing strategy. Over a longer period of time, you might notice that one or two particular marketing channels are bringing in more revenue than others. Long term ROI measurement informs you of where you should allocate more marketing spend.
To determine the most influential content types, keywords and call-to-actions that impacted your ROI the most, you’ll need to monitor your analytics’ metrics carefully to figure out golden nuggets in your marketing campaigns, to improve your final marketing return on investment
Your International Advertising Partner
If you need help developing influential marketing strategies, improving your ROI and understanding key metrics in your marketing analytics – we’re the perfect agency to help you achieve your marketing objectives within your budget, and provide you with crucial insights.
EMPIRE can help you gain massive brand exposure and reach from a diverse target audience, with dynamic eye-catching advertisements that grab the attention of your target audiences and deliver your brand message effectively.
With years of industry experience in the advertising field, our team is ready to walk with you every step of the way to ensure your initial marketing investment is spent wisely, using the right advertising mediums to generate the results you need.