The Importance of ROI Indicators: Why Marketers Care About Return on Investment

Collecting data and analyzing the metrics are the essential steps every business makes to determine whether a specific marketing campaign, an event, or a picked strategy can guarantee a proper return on investment. This way, any marketer can see a bigger picture, choose another viable course of action, and reach the set goals.

Investments require appropriate justification. And therefore, any action plan or strategy chosen by the company should be carefully examined and considered. One of the most efficient ways to pinpoint the operations which are likely to result in greater returns is to use marketing ROI calculation. Businesses track and measure ROI regularly to invest strategically and ensure rational budget management. And that is how they are able to keep the intended results aligned with the company’s aspirations and goals.

How to Use ROI for Goal Setting

Today’s fast-paced marketing environment requires more than data-driven analytics. In a nutshell, the way businesses now use and calculate ROI has somewhat changed. And the focus shifted to more insight-based decision making. Therefore, marketers tend to reflect on the positive results of specific campaigns and later on make use of all the insights they gain in the process. Simply put, they utilize the knowledge to enhance and boost performance in the future. With a more sophisticated approach to revenue marketing analysis, businesses can optimize their marketing efforts smartly and efficiently.

It is no secret that ROI calculation offers multiple opportunities for all types of companies. But how can they use it to foster the development of numerous departments and a company as a whole? ROI is also a handy tool that can help you make crucial business decisions like the following:

Switch to a more flexible marketing platform. It can help you add some extra tools or features and cut the costs. In this case, calculating ROI can come in handy if you want to measure how much value it brings, whether it can boost sales, or engage and track prospects with greater efficacy.

Recruit and hire additional experts. In this case, you can objectively assess whether there is a need to hire new employees to improve performance and profitability. Besides, tracking ROI can also help you identify the type of people your company needs to recruit.

Create a new department. Like recruiting new experts, setting up a new department can be a challenging but smart choice. To reduce the need for guesswork and determine the lucrativeness of this decision, you can meticulously calculate the ROI and assess the need for expansion.

Optimize sales funnels and strategies. In this case, it is crucial to track and pinpoint the approaches that resulted in substantial returns and attracted more clients. This way, you can come up with more ideas on how to boost sales and performance.

How to Calculate ROI and Evaluate Your Marketing Efforts

The calculation is relatively simple. What you need to do is divide the profits resulting from your investment by the cost of the investment. This way, you will get a positive or negative result, and it will show how much you have gained or lost through the investment.

Naturally, there is more than one way to calculate marketing ROI. The general formula that is often used to evaluate the marketing impact of ad campaigns is also quite straightforward. However, it implies that all the revenue growth is associated with marketing efforts. And that may not always be the case. Therefore, it is crucial to approach the calculation process from the most realistic angle. And that is when organic sales come into play. The more sensible version of the formula would look this way:

(Revenue Growth - Organic Revenue Growth - Marketing Costs) / Marketing Costs = Marketing ROI

Certainly, it is necessary to take into account the total value of ROI generated only by the marketing efforts of the company. While there are several ways to calculate the returns, every marketing team operates within an individual strategy. And each strategy has its specifics, channels, definitions of different terms, and overhead expenses. Therefore, the formula might change depending on the elements that need to be included in the calculation.

The Key Takeways

Naturally, it is crucial to analyze the key indicators and sometimes re-examine the metrics to ensure that you make accurate sales forecasts and follow the right strategy. While the latter can justify the marketing costs, companies need to generate high ROI regularly and, at some point, work on increasing it.

Apart from the general campaign performance metrics, businesses need to consider the performance of different channels, especially today, when the accurate tracking of customers through the omnichannel landscape becomes the principal source of granular data. Therefore, using the right attribution models and marketing strategies becomes an integral part of ROI tracking and measurement.

Marketers always strive to produce actionable data and deliver results. However, choosing the best approaches and strategies to reach the desired outcomes can be a challenging task. That is why performance- and revenue-focused metrics, accurately defined marketing priorities, and insight-based decision making can work wonders and result in improved ROI.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes