Estimating Market Spend ROI: Why It’s Important and How to Do It

• Marketing Analytics

Marketing comprises all the efforts and investments of a company, for the acquisition of new customers and for maintaining a relationship with the ever-growing customer base. Every company needs an effective marketing campaign to be able to reach their targets every quarter, and what each company wants to know is the Return on Investment (ROI) they can expect from the money being put into the campaign.

Creating a successful marketing campaign is at the root of overall business profitability, making marketers quintessential to any business venture. They have to consider which campaign will be ideal for maximizing ROI, execute the campaign, and leverage the insights gained from previous campaigns to enhance future efforts. An aimless marketing strategy or the lack of one comes with a variety of risks including uncoordinated tracking, ineffective promotion strategies, low traffic, and budget-related issues. Hence, calculating market ROI forms the base for every successful marketing campaign, which in turn reflects a company’s profitability.

Email campaigns, digital ads, and social media campaigns are some instances where it becomes essential to determine an ROI and monitor the campaign, as these campaigns often target new customers and conversion rates play an important role in how much of the targeted ROI will be achieved. With market-mix optimization tools companies are able to monitor the campaign metrics in real-time, optimize them based on analytics, and generate the optimal marketing ROI to keep the company profitable.

Benefits of Estimating Market ROI

There are several advantages of estimating market ROI from measuring the success of current marketing campaigns to making a case for new ventures. Some of the benefits are as follows:

• Measures efficiency of campaigns based on the estimated ROI and the actual returns
• Justifies market spend by exhibiting the profits from campaigns
• Serves as a benchmark for comparative analysis against competitors
• Acts as the most important indicator of investment divisions and other performance ingredients
• Correlates with standard accounting measurements and streamlines finances

Marketing ROI Formula

The simplest way that marketing ROI can be calculated, is by integrating it into the business line calculation. All you have to do is subtract the marketing costs from the total sales growth of the business line concerned, and divide it by the marketing costs.

(Sales Growth – Marketing Cost) / Marketing Cost = ROI

Even though the simple formula for calculating ROI seems pretty straightforward and easy, there is a major assumption at its heart. It assumes that the sales growth is only a result of the marketing campaign. Hence to get a clearer picture of the real marketing ROI, there needs to be room for comparison. Comparison to the sales growth over the months prior to the marketing campaign being launched. Only then can the true impact of the campaign be understood.

The ideal option would be to have data on sales growth for 12 months before the campaign launch. This enables companies to measure the organic sales growth over a long duration and have an estimation of the average organic sales growth per month. This organic growth is an increase in sales not as a result of marketing campaigns, but other factors such as word of mouth bringing in new customers and repeat customers based on positive customer experience

The formula for calculating ROI hence changes to – 

(Sales Growth – Average Organic Sales Growth – Marketing Cost) / Marketing Cost = ROI

Eliminating organic sales growth from the total growth offers a clearer picture of the true impact of the marketing campaign, and the ROI is generated independent of other factors.

KPIs for Measuring Marketing Campaign Success

There are several performance indexes to be taken into consideration while measuring marketing ROI, related to attributions along the customers’ journey with your company. Attribution is the act of assigning weight to particular touch-points where there is customer engagement.

Most customers do not purchase any products or services when they first interact with a company. They need to weigh their options considering your competitors in the market, feel that they can trust your company, and only then is the interaction transformed into a conversion. And customers interact with your company through various touch-points, such as knowledge spread through word of mouth, interactions on social media platforms, comments on blogs, signing up for emails, or even attending a webinar.

Single Attribution refers to a model where the first or last touch-point on the consumer’s journey is considered as the point of conversion and marketing ROI is calculated based on that. Whether it is a blog from an organic search (first-touch) or an email with a coupon (last-touch), that touch-point shall be attributed all the credit for the conversion.

Multi-touch Attribution is the process of calculating ROI while assigning equal weight to every touch-point where the consumer interacts with your company. This model offers the advantage of getting a holistic view of the marketing campaign, while understanding the contribution of each touch-point, from introduction to conversion.

Moreover, several other factors such as customer engagement models, customer segmentation, Big Data, and marketing analytics, help in generating a competitive market intelligence, determining ROI, and developing an appropriate marketing campaign to suit the requirements. With scalable campaign analytics tools enhancing efficiency exponentially, campaign metrics can be monitored in real-time, and adjustments can be made to optimize ROI.

The ROI of marketing campaigns is ultimately dependent on the increase in sales and if you can have an estimation of the target ROI, you can always adjust your campaign to hit the target and realize value from the investments made.

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