As a small business owner, you need to invest your resources wisely — especially when you are first starting. As such, whenever you launch a marketing campaign, you want to ensure it is as successful as possible; that you are getting a good return on investment (ROI) for your marketing efforts.
What Is Marketing ROI?
By calculating your return on marketing investment, you can properly attribute the degree to which your digital marketing strategy is contributing to profit and revenue growth. It is what helps you know if a marketing initiative is generating enough results to justify the expense. This can be done either holistically or on a campaign basis. It is an important tool for determining marketing spend and budget allocation.
What is considered a “good” marketing ROI can vary greatly depending on your industry, tactics, and specific business goals. However, at a minimum you want to make more than a dollar for every dollar you invest in a marketing campaign.
How to Calculate ROI in Marketing
If you search for “how to calculate ROI” you will likely encounter this simple formula:
(Return – Investment) / Investment
While applicable in some situations, the above formula isn’t always the best way to measure digital marketing ROI because all marketing tactics are different. For example, how you measure the impact of a local SEO campaign is very different from tracking the performance of a paid advertising campaign. They are different activities that take place on different channels over different time scales.
Some other ways to measure the effectiveness of your marketing activities include:
- Sales growth – Marketing spend
- Time spent vs. Money generated
- (Ad spend / New customers) × Customer lifetime value (LTV)
- [((Number of leads × Lead to customer rate × Average sale price) – Cost for marketing) / Cost for marketing] × 100
At the end of the day, how you decide to calculate your marketing ROI will depend on your specific business needs and marketing activities. Ultimately, however, it is all about the money you invested in marketing versus money made from marketing.
Five Steps to Improving Marketing ROI
So, now that we have covered the basics of what marketing ROI is and why it is important, let’s talk about how you can go about improving it.
Whether your goal is to generate more sales, attract new customers, or increase brand awareness, this expert guide will give you some key principles for improving marketing ROI in your small business.
Step 1. Determine Your Core Metrics
The first step to improving your marketing ROI is identifying your key performance indicators (KPIs) and how effective your marketing efforts are in these areas.
It is important to avoid basing your ROI analysis on so-called “vanity” metrics (such as social media “likes”, comments, or shares). These metrics might give you great-looking numbers, but they do little to help you achieve your actual business objectives. For example, people might “like” a Facebook post, but never use your service or buy your product. While engagement metrics can be useful for optimizing social media campaigns (for instance, sentiment analysis), they do not directly correlate to revenue and do not help determine your true marketing ROI.
Instead, you want to select actionable KPIs that tie to meaningful business outcomes. We suggest using the SMART methods — namely that your metrics are specific, measurable, assignable, realistic, and time-related. Your SMART metrics should provide feedback and context for how your digital marketing strategy is affecting your revenue.
Some example metrics related to ROI include:
- New sales
- Customer retention
Step 2. Focus on Multiple Marketing Channels
Another way to improve your ROI is by experimenting with different marketing channels to see which ones work best overall for your business. If you only market in one or two ways, you won’t be easily found online. Rather, you need to build up your digital footprint, so that your small business is easily discoverable wherever your audience looks online.
Some key channel areas to consider include:
- Email marketing
- Social media
- Content marketing
- Direct mail
- Digital advertising
- Video marketing
- Mobile marketing
Make sure to carefully track performance on different channels. Once you know your most effective marketing channels, you can focus on optimizing performance to increase your ROI. This will include determining how you can effectively manage and coordinate your marketing activities across various channels.
Step 3. Test Everything
Regular campaign testing is key for improving your marketing ROI. Despite what some marketing firms might tell you, you do not have to be a trained data scientist to use some basic research techniques. Even relatively simple business experiments can offer valuable insights and help you identify possible alternatives to improve performance. So, make sure you set aside time (and some of your marketing budget) exclusively for experimentation.
When it comes to digital marketing, the most common form of test-and-learn experimentation is A/B testing. A/B testing involves modifying one element of your campaign and comparing its performance to a previous (or unmodified version) of the campaign. For example, you might test a different call-to-action, headline, landing page layout, etc. A/B testing allows you to try out new ideas and identify the best-performing variants. By continuously testing and tweaking different variables, you can further optimize performance and increase ROI.
When it comes to marketing tests, it is a good idea to stay focused on one area of experimentation at a time. This will help ensure your results are as clear as possible.
Step 4. Measure Everything
Having accurate data is critical for determining how to improve your ROI. Once they start acutely tracking data, it is not at all uncommon for business owners to discover they are spending money on marketing ideas that sound good in theory but fail to actually drive the results they want.
In order to make informed marketing decisions, you need to be able to analyze what you are spending and bringing in at each stage of your customer journey. This means having a platform where you can compare your core metrics across different marketing channels to focus your marketing budget on actions that bring in the greatest number of new customers.
To work out which channels, campaigns, or content are and aren’t working, look at the bottom of the funnel results. Namely, how many conversions, leads or profit are you making from each marketing initiative? For example, is a specific channel driving the number of conversions you need? Has a piece of content contributed to your profits in the last three months?
By identifying which channels and tactics aren’t working, you can then direct your spending to those efforts which are producing results — thereby increasing your marketing ROI.
Step 5. Commit to Your Strategy
While it would be nice to be able to flip a switch to get instant results, the reality is that digital marketing strategies take time and care to come to fruition. A common mistake inexperienced small business marketers make is getting frustrated when they do not immediately see results after a few days, and switch to a different strategy.
We have discussed the need for incremental testing of different campaign elements to improve performance. However, just as important is having a big-picture view. You can not get accurate and meaningful data if you completely change your online marketing strategy every other week.
This does not mean blindly sticking with an ineffective strategy forever. Indeed, you should always be using the insights you learn through testing to polish off your marketing strategy. But instead of blindly changing your marketing approach based on initial performance impressions, it is important to stick to your plan until you have gathered enough analytic data to make informed decisions.
Manage Your Marketing ROI in One Place
Surefire Local is committed to helping you improve your marketing ROI. Our all-in-one marketing intelligence platform is designed specifically for the needs of small and medium-sized businesses. From a single dashboard you can:
- See a 360° view of all your key performance metrics in one place.
- Track and manage all of your paid ad campaigns.
- See the number of leads generated from each channel.
- Analyze and promote your best-performing content.
- Access real-time data and run detailed reports on your digital marketing ROI.
With the Surefire Local Marketing Platform, you get the digital tools and information you need to make informed business decisions. Instead of worrying about wasting money on underperforming marketing channels, you can focus your time and effort on what works.
Request your free demo today to get started with the industry’s most powerful marketing platform!