Is ROI The Best Metric, Or The Best Metric Ever?
Marketing Return On Investment (ROI) is a metric for measuring the effectiveness of marketing campaigns. It is usually expressed as a percentage and is the ratio of the net revenue generated by a specific initiative divided by the costs.
Businesses can use it to measure the success of individual campaigns and the overall effectiveness of their marketing strategy.
Your marketing ROI explains your spending and budget allocation for ongoing and future campaigns and initiatives. The formula used to calculate marketing impact is:
(Sales Growth - Marketing Cost) / Marketing Cost = Marketing ROI
Generally, your ROI should be at a 5:1 ratio; an exceptional ROI would be around a 10:1 ratio. Break-even would be at a ratio of 2:1, which puts it in the non-profitable bracket.
Track Your Performance
Tracking your ROI's performance and the various associated factors can help you assess your marketing campaigns and make data-driven decisions for optimization.
- Track over time: Monitoring the progress of your marketing goals by tracking how your ROI is performing allows you to make any necessary adjustments when required.
- Campaign ROI Tracking: Understanding why specific channels and campaigns are performing versus those that need improvement can also be achieved by tracking the generated ROI from each source.
- Revenue sources: Knowing where your results are generated, is it revenue from new customers, repeat customers or referrals?
- Marketing costs: Analyze the performance of your marketing activities, from advertising to social media and see which are cost-effective and serve your purpose.
KPIs That Matter
Marketing ROI is a high-level metric representing marketing activities' overall financial performance. To calculate it, you can consider several sub-metrics and data points, which can include:
- Return on Marketing Investment (ROMI)
- Cost per lead (CPL)
- Lead close rate
- Cost per acquisition (CPA)
- Average order value (AOV)
- Conversion rates by channel
- Conversion rates by device
- Exit rate
- Blog click-through rates
- Customer lifetime value (CLV)
- Revenue from Ad Spend/Ad Spend (ROAS)
- Engagement KPIs
- Social Media KPIs
- Sales growth KPIs
- Search engine optimization (SEO) KPIs
As a business, you can track and analyse these individual metrics to better understand how to optimize your marketing strategies and improve your overall ROI.
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