Marketing is a vital aspect of any business. You can attribute the growth of the company to its marketing campaigns. Hence, it becomes essential to measure the return on investment in a marketing campaign. Every business should know what they are getting for the money they spend. Let us look at some of the conventional methods of determining the ROI of a marketing campaign
• Elementary method
Integrate the ROI into the overall business line calculation. Take the sales growth from the product line, subtract the marketing costs, and divide by the marketing costs.
This example will clear out things.
Sales Growth = $ 500
Marketing Costs = $ 100
Hence ROI = (Sales – Marketing Costs)/Marketing Costs
In this case ROI = (500-100)/100 = 400%
• Campaign Attributable ROI
The above calculation is an easy one. However, it is not necessary that the marketing campaigns alone influence the month-over-month growth in the sales. There are other factors as well. The marketing campaigns are an addition to the usual organic growth. Hence, you should also account for the healthy organic growth while calculating the ROI on the marketing campaign.
Thus, the formula for calculating the ROI becomes,
ROI = (Sales Growth – Average Organic Sales Growth – Marketing Cost)/Marketing Cost.
Take the same example as listed above. If the business witnesses an average organic sales growth of 5% on a month to month basis, the ROI changes considerably.
ROI = (500-25-100)100 = 375%
The second method appears to take a more realistic approach. However, calculating the marketing ROI has its challenges. The ROI in the initial months may be low, but as the campaign picks up steam, the sales start to grow. Hence, you can find an improvement in the cumulative ROI.
The factors that affect the ROI of a marketing campaign are brand awareness through media, social media likes, and other soft metrics. Estimating the ROI of a marketing campaign is essential to understand the efficiency of the campaign. There are other methods of measuring the ROI.