Marketing ROI is a method of calculating the tangible value generated (return) on the financial expenses made (investment) by a company as a part of its marketing activities.
ROI is an acronym that stands for return on investment, which is typically used by for-profit organizations.
Marketing ROI is a benchmarking process that enables organizations to attribute the increase in profits and revenue to each of their marketing activities.
Analyzing marketing ROI helps businesses determine the extent to which a particular marketing initiative translates into financial gains.
It also gives insight into the overall contribution of a marketing campaign to a company’s profitability, sales, and penetration.
Naturally, measuring ROI is fundamental to justifying marketing budgets, allocation patterns, and strategizing future campaigns.
Read more about the basics of Marketing ROI.
Chief marketing officers are responsible for justifying the budget allocated to various activities to other senior executives.
Thus, depending on the type of organization, sector, market conditions, and objectives set by the CMOs, they need to calculate the MROI as a mutually understandable benchmark.
This also helps marketers describe the importance of specific activities individually and as a part of their complete marketing strategy.
Below mentioned are the reasons behind measuring MROI:
Read more about the need for measuring Marketing ROI
The return on investment for marketing is a simple calculation. Here’s a simple yet fundamentally encompassing formula to describe it as a mathematical expression:
Marketing ROI = (Increase in financial gains resulting from marketing activities – the holistic cost of marketing initiative) / holistic cost of marketing initiative.
The basic objective of ROI calculation is to get a positive figure and conclude that the marketing activity is either sustainable or highly profitable.
The bigger the MROI figure, the better, as it allows marketers to justify their budgets while helping businesses create thresholds to determine capital expenditure.
If the marketing ROI isn’t attractive, it becomes difficult for marketing leaders to seek approval for such campaigns. Also, it may act as an indicator for loopholes in the strategy, execution, or both.
Read more about how to monitor return on marketing investment in real-time.
Like most people, you might find that calculating marketing ROI is quite simple after seeing the formula.
However, real-life marketing ROI calculations are quite complicated due to a variety of factors.
One of the common dilemmas faced by most marketers is deciding which costs to include during the calculation of MROI.
For instance, when considering the costs involved in running a display ad on Google Display Network, should you include the cost of copywriting and designing the creative.
Also, the cost of marketing tools used for monitoring, human resource overheads, and any other resources consumed after the ad is live may also be included.
The same goes with social media marketing since the cost for developing creative content can be lower than handling the account and other interaction-based activities.
At the same time, MROI calculations must also take into account external factors such as weather and market conditions for a more accurate view.
Another important challenge in measuring the MROI is the fact that not all marketing activities are designed to return investment during the regular evaluation periods like MoM, QoQ, and YoY.
Here are the challenges in calculating marketing ROI:
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After understanding the concept of calculating marketing ROI, its formula, and the challenges faced in its calculation, let us go through some actionable tips to improve it.
It is natural that the nature and circumstances of every business are going to be unique and change from time to time.
However, it is important to specify the internal and external factors that might affect your marketing ROI.
Also, you must clearly define what the outcomes shall be, how you will measure the progress, and any damage control measures to contain deviation in results.
Budgeting marketing expenditures such as developing creatives, staffing, agency costs, and other overheads may assist marketers in properly formulating their marketing ROI measurement techniques and deciding which KPIs to include in ROI calculations.
It is difficult to monitor ROI when you are spending money on diverse platforms at different rates.
Thus, you must use a marketing platform that helps you unify all your channels to analyze spending and make automated decisions.
It must provide you with the necessary analytics on a real-time and consolidated basis so that you can share the insights with different stakeholders.
Read more tips to improve your marketing ROI
Knowing the impact of making marketing investments is crucial to your business’s financial health as well as its longevity.
Also, it helps win the trust of stakeholders and investors since running marketing campaigns can be capital intensive.
Here are some of the most sought-after benefits of calculating MROI:
Read more about the benefits of calculating marketing ROI
As with any other concept in business, ROI in marketing comes with its fair share of limitations that every business owner must be aware of.
Here’s a list of MROI limitations that you must keep in mind while making business decisions:
Read more about the limitations of Marketing ROI.
Since ROI gives very narrowed-down information, it doesn’t provide enough insights for the entire organization. Also, it isn’t necessary that one can shut down a marketing initiative just because of bad ROI.
Despite the fact It’s a useful calculation, it only gives limited information, and thus, you may want to explore some other ROI alternatives listed below:
Read more about ROI alternatives.