In this article, you'll learn...
- The basics of calculating marketing ROI
- A more nuanced and comprehensive way to calculate ROI
Sure, marketers like to hear those familiar three little words: "I love you." But, let's face it, no three words are more beautiful and pulse-racing to hear while on the job than "return on investment" (ROI).
Marketers are on the hook. Measuring ROI on each marketing activity is critical to proving our effectiveness and competing for scarce resources. Evidence that supports that notion: Nearly two-thirds of surveyed CMOs (63%) think ROI will be the primary measure of their effectiveness by 2015.
But what was profoundly revealing was that 56% of surveyed CMOs said they feel inadequately prepared to manage ROI. That means the pressure is on to calculate ROI in ways that yield accurate, supportable numbers, particularly pertaining to marketing expenditures.
CMOs who understand financial and statistical analysis are putting themselves on a level playing field with their brethren in other corporate departments, because those CMOs are using the same measuring stick to prove effectiveness.
Measuring ROI effectively will help marketers add value to their organizations and attract their fair share of resources.
Basic ROI Calculation
The math is basic, but the components aren't always easy to figure out. Any solid ROI calculation should measure revenue generated by the marketing campaign, profit margin on the items sold, and marketing-related expenses. Yes, profit margin can be difficult for organizations to quantify because it incorporates the cost of operations, but it's a necessary ingredient to calculate ROI accurately.
Keep in mind that to be able to quantify revenue generated "by the marketing campaign," those campaigns need to have been designed to capture responses in the form of revenue from sales.