Fundamental Rules For Measuring The ROI Of Marketing

Measuring ROI is an essential aspect of marketing. It helps you determine whether your efforts are helping the company achieve its customer acquisition targets. The insights gleaned from the process can inform future strategies for better business performance. 

While there are endless solutions to automate the ROI of marketing computations, the challenge lies in determining the right data points relevant to your business outcomes.

Explore three foundational rules for measuring ROI that marketers can use to get a clearer picture of the impact of their marketing campaigns.

3 Essential Rules For Measuring Marketing ROI

ROI considers the net profit generated by marketing efforts relative to the cost of those efforts. It seeks to determine whether a company gets enough value from its marketing investments. 

ROI of marketing = Sales - Marketing Costs

However, while marketing expenses are easy to calculate, attributing the profit generated to specific actions can be challenging.

Here are some helpful tips to remember.

Rule 1: Track the right metrics

ROI marketing agencies mostly use attribution data in evaluating the effectiveness of marketing campaigns. Attribution is simply assigning specific outcomes to specific efforts or channels. Here are a few examples of attribution models commonly used in results-driven marketing.

• First Interaction: This model credits 100% of the customer’s conversions to the first channel they interacted with.

• Last Interaction: A user’s last interaction with your brand receives 100% credit attribution for the conversion.

• Last Non-Direct Click Interaction: Full attribution goes to the last non-direct channel the customer interacted with before conversion.

It’s important to highlight that marketing mix modeling (MMM) is gaining popularity over traditional attribution approaches in calculating the ROI of marketing. While attribution is limited in scope to individual touchpoints, MMM provides a more holistic view of the marketing mix. 

In an interview with the Marketing Analytics Show, Tim Wilson says,

“The formula for calculating attribution using a heuristic approach of first-touch, last-touch, or time-decay makes tracking a person’s journey across all touch points extremely difficult. 

Rule 2: Clean your data for clearer results

Forrester's research shows that 70% of marketers acknowledge that their organizations keep poor-quality prospect data. Another report indicates that over 40% of sales representatives face difficulties due to incomplete and obsolete information regarding their leads, affecting their sales performance.

Therefore, you should only calculate ROI using transparent and verifiable data. Ensure your old data is comparable to your new data and can be easily converted. This makes it easy to compare data year-over-year to reflect the efforts made over time. 

Rule 3: Set clear objectives 

ROI marketing agencies should establish clear and measurable goals that signify what factors make up their ROI. You need to set the parameters first rather than starting at the point of analyzing the data results. 

Consider how activities that contribute to the marketing mix, such as product, place, price, packaging, positioning, promotion, and people, will be applied to marketing ROI calculation.

Determine the metrics that are most important to your objectives. KPIs should be measurable and directly linked to targets, such as conversion rates, customer acquisition cost, customer lifetime value, and revenue generated.

Conclusion

Marketing should be done with the ultimate goal of adding value to customers. In addition, organizations should visualize customer engagement across various channels and how these channels contribute to the generated revenues. Proactive rules for measuring ROI like these can help unlock more effective marketing strategies and better results overall.