If there is one topic that always comes up around the boardroom table, it’s return on investment (ROI).

Naturally so. Most people want more certainty around the profit (return) they make on a business investment. There are a few ways of approaching this. 

 

The 101 way:

Sales growth – marketing investment/ marketing investment.

If your sales grew by $10,000 and you invested $1,000 in marketing – that is a 900% ROI. Not bad.

For a more nuanced approach, consider taking out the organic growth your business may have had in the past 12 months. Also consider factors such as seasonality and lag time. Some purchase decisions have longer lead times than others, so the money you invest in your marketing this quarter may take a few months to realise.

Digital marketing way:

Digital marketing is great for simple ROI calculations. Forget about sessions to your website and engagement just for the minute and let’s focus on conversions.

If you have the correct installation of Google Analytics on your website, you can track:

  1. How many people come to your website
  2. What channel they are coming through
  3. What advertisement they respond to in order to get there
  4. What actions they take on your page (contact form submissions, phone calls, link clicks)
  5. How many of them convert and generate revenue for your business

You don’t have Google Analytics set up on your website? Or perhaps not in a way that produces meaningful or accurate information? You are not alone.

A recent tourism client did not have the right Google Analytics tracking set up on their website. Now they have a simple dashboard that informs them of what they need to know, including revenue data generated from online holiday bookings.

This has transformed how they prioritise their online channels and is starting to generate some real results. Ask us about how we can help set tracking up for your website by contacting us right here.

Let the metrics tell the story of your digital marketing campaign. Photo by Kay.

‘How much to spend on advertising’ way:

Let’s say you are in the ice cream business. You have your sales goals for the month, and you know you are able to convert 5 in every 100 customers you interacted with. Choice! You can actually set your advertising budget with this information. Find out how by following this simple approach. 

The more sophisticated way:

Lifetime value of your customer – marketing investment / marketing investment.

Say one customer is worth $10,000 in profit over their lifetime as your customer. This means you could spend up to $9,999 to acquire this customer and still make a buck.  

If you invest less, you could be slowing your own growth. If you invest more, you are either growing broke or buying market share. Ultimately, how much you invest will depend on your net profit goal, what is happening in your business and where you are in your strategy.

Find out exactly how you can measure ROI on your marketing by reading this article.

The ‘media investment’ way:

This is a simple yet decent way of tracking your performance and compliments the ‘digital marketing’ way above.

If you spend $1,000 on AdWords of Facebook ads, and they generate $10,000 in sales you are on to a bloody riot. Keep going!

Of course, this doesn’t factor in the cost of the creative, management costs and the cost of the cups of tea that went into planning and executing the campaign. To make matters worse, it doesn’t factor in the long term (long term!) impact your investment may have on people’s perceptions of your brand.

Consumers rarely behave in a well-informed and fully rational way. Pic by Ursula Ott.

Do you think we are all rational decision makers when it comes to business? No way. We decide based on gut feel, what our friends say and deeply seeded biology. We post rationalise our actions by lining up as many numbers as we can.

You could be pouring your dollars into AdWords or Facebook and destroying your brand in the process. Your email marketing is working, so now you are spamming your customers 24/7? Bad idea.

Great marketers are ROI positive when they execute their strategies. Bad marketers aren’t. It’s a bit like soccer players. Not all soccer players are equal. There is talent involved. And a whole lot of practice.

MBA way:

As a CMO, you may encounter a CEO or CFO who asks you to produce a Net Present Value (NPV) analysis to support your marketing budget.

NPV analysis is useful in determining whether an investment should proceed or not. It recognises that the money you have today is worth more than an identical amount tomorrow. The money you have today can be invested and start generating profits immediately, while future money is subject to inflation and risk.

As a leader, your job is to make wise investment decisions with the money you have today. You may be able to show your leadership team, that by investing in marketing this could generate a return of 15%, whereas using the same amount in lower yielding activities generate less cash for the business in the future. The formula is a little bit technical and goes like this:

 

Net present value = Rt/(1+i)t

 

‘Rt’ shows the net cash flow (cash in minus cash out) in the business for a set time period.

‘I’ is the discount rate applied, or the return the investment is expected to generate (in our example 15%).

While I encourage you to be fluent in numbers when you sit around the leadership table, words and intuition also need to form part of your approach.

You should run sensitivity analysis to test your assumptions in your NPV model, listen to your colleagues and to your own gut feeling before you decide.

 

The woo-woo way:

Some marketers don’t like numbers, so they talk colours instead. That’s not good business. Sure, brand tracking, sentiment, engagement rates and buzz matters (a lot!) but let’s be real and bring business metrics into the conversation.

Business metrics way:

Number of enquiries, number of sales, revenue and profit – they’re great metrics!

You need a pipeline of enquiries, as you won’t convert them all. You can track your sales volume over time to see if you are trending up or down. Your revenue and profit show in dollar terms what is happening with your profit and loss.

But numbers alone are not the answer. Variables, including timing, quality, customer experience and patience doesn’t easily translate into neat dollars and cents.

That’s what makes business so interesting. It’s complicated and simple all at once. Your business can be nurtured, transformed and thoroughly stuffed up. By using some or all of these approaches to track your ROI, you will be on the right path.

 

About Long & Co

Long & Co is a small brand and digital alternative to a big agency. We offer everything an agency does, without the overhead. We have a network of talent across Sydney, Newcastle and Byron Bay. We think and we do.

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