What is Marketing ROI?
Marketing return on investment (MROI), is a way of demonstrating the profitability of marketing activities.
ROI is usually expressed as a percentage - it’s the ratio of the net revenue generated by a specific initiative divided by the costs.
An ROI that’s greater than zero implies that for every dollar spent on marketing activities you make a profit. An MROI of 50% would imply that every dollar spent on marketing would generate $1.50 in revenue and $0.50 in profit.
You can calculate marketing ROI as a total for all marketing initiatives combined or more usefully as an ROI for specific campaigns or mediums.
It is sometimes referred to as return on marketing investment (ROMI).
Put simply, marketing ROI shows the viability of marketing and how marketing campaigns contribute to a company’s bottom line.
How to calculate Marketing ROI:
You can calculate marketing ROI using multiple formulas, depending on what makes the most sense for your business..
The basic formula is:
[[ Revenue generated by marketing effort ($)
Cost of marketing effort ($) ] × 100 ]
Revenue generated by marketing effort ($)
As it’s sometimes difficult to track revenue, it may be more convenient to approximate it using a formula like the one below:
[[ No. leads × Lead to customer conversion rate × Average Sales Price ($)]
Cost of campaign ($) ] × 100 ]
Cost of campaign ($)
To use this marketing ROI formula, you need to identify each individual component.
- Number of leads - the number of people that became a lead.
- Leads to customer rate - how many of those leads converted to customers. If 20 out of 100 leads became customers, the lead to customer rate would be 20% or 0.2.
- Average sales price - the average price that you sell your product. An average is particularly relevant if you sometimes apply discounts and promotions to your products.
Remember your marketing ROI is continually evolving so it’s essential to set a time limit when you calculate the return for each campaign. You may want to measure the return on a specific campaign on a monthly, quarterly, or yearly basis. Reviewing the ROI on short-term and long-term grounds will help give you the best understanding of your marketing ROI.
Cost of marketing efforts
You need to know the total spend on building and promoting the marketing campaign for both formulas. Always include costs like the hourly wages of people working on the project, ad spend, or any other campaign-related costs.
Why is calculating marketing ROI important?
Calculating your marketing return on investment will ultimately make it much easier for you to manage current campaigns, evaluate their success, and plan future marketing strategies.
Justify marketing budgets
Knowing your marketing ROI will help you demonstrate the value of your marketing campaigns to company directors and executives. Once other team members know that your campaigns are profitable, you’ll find it easier to ask for and justify future marketing budgets.
Evaluate marketing efficiency
Tracking your marketing spend and other resources properly will help you evaluate the overall efficiency of your campaigns. If a marketing campaign required a high budget, lots of labor but still didn’t produce a good ROI, you may decide to allocate your marketing budget to another campaign.
Allocate each dollar
Reviewing the precise spend for each campaign will help you evaluate which campaigns have a higher return on investment and deserve further investment. Knowing the ROI of each dollar spent will help inform your future marketing campaigns and how to spend each dollar beneficially.
What to keep in mind when measuring marketing return on investment
When it comes to reviewing your marketing campaigns, it can seem challenging to determine your ROI. Although it’s easier to see rates of return for social media and PPC ads, it’s harder to attribute revenue to other pieces of marketing content like blogs and ebooks.
Regardless of which marketing campaigns you implement, it’s a good idea to keep a few factors in mind to help you review the overall success of each campaign.
Time spent - How long did it take to build the marketing materials
Page visits - Add tracking URLs to find out if your content is driving traffic to your chosen landing page.
Production costs - Review the total spend on labor, supplies, and software that were used to make the campaign.
Promotional spend - Track how much was spent on promoting the marketing campaign.
Non-financial ROI - Did your social media following increase, did you receive more page views, or any other bonuses from the campaign? These things could still help build brand awareness and customer trust resulting in purchases further down the line.
Pros of Marketing ROI
Marketing ROI is one of the most important metrics for a marketer to calculate since it proves the effectiveness of the marketing spend. By calculating the marketing ROI you’ll have a concrete number to take to the CEO.
MROI can be used to calculate the overall profitability of your marketing efforts, a single channel or campaign, or even the ROI of media spend (paid advertising).
Remember to consider the non-financial elements that may boost your brand too.
Cons of Marketing ROI
As with many metrics, MROI can be artificially inflated if you pick and choose which campaigns or channels you report. If you want the ROI for a specific channel, that’s great - but be sure to present your MROI in context.
For example, if you’re preparing for a board meeting, you’ll probably want to present your overall marketing ROI (calculated with monthly or annual gross profit and monthly or annual marketing investment), not a specific channel or individual campaign.
Also, remember that the overall goal is to maximize profit, not necessarily marketing ROI. Maximizing profit and long-term value often goes beyond obtaining the highest MROI possible. As always, keep the overall company goal in mind as you monitor and improve MROI to ensure all your efforts align with your business objectives.
When calculating the costs of any marketing campaign, it can get complicated when you’re trying to factor in employee time. If you manage both an in-house and freelance team for your marketing efforts it can be challenging to obtain an exact figure for employee time.
Since MROI varies significantly by channel and business model and can be calculated based on a single campaign or at a company level, it’s too broad to provide a one-size-fits-all benchmark.
The aim is to always make more than a dollar for each dollar you spend on marketing activities.
It might be helpful to set internal benchmarks based on past campaigns or time periods (last quarter or year).
Relevant Marketing Metrics and KPIs:
If you’re adding Marketing ROI to your marketing dashboard, you might want to also consider tracking these related marketing metrics for context.
The difference between MROI and LTV:CAC
Marketing ROI can easily be confused with LTV:CAC ratio and cost per acquisition (CPA).
Let’s take a quick look at the differences:
- MROI focuses on marketing efforts and can be calculated on a broad scale or on a specific channel or campaign
- LTV:CAC ratio concentrates on company-wide growth and includes sales contribution
- Cost per acquisition (CPA) is specific to online media spend. It calculates the cost of acquiring a customer via paid marketing (social, search, etc.). CPA is a direct marketing/response metric