Marketing ROI

What is ROI in Marketing?

How to calculate marketing ROI?

How to increase marketing ROI?

What is ROI in marketing?

Marketing return on investment or marketing ROI is a key performance metric that measures the efficacy or the profitability of investment in different marketing campaigns and initiatives. It is sometimes referred to as ‘return on marketing investment’ (ROMI).

Businesses use marketing ROI as a metric to answer one or more of the following questions:

  • Is the money allocated for marketing communications well spent?

  • What is the impact of marketing on the overall profitability of the business?

  • How is our marketing performing against others in the industry?

  • Which programs / campaigns / promotions have the highest ROI? Which ones are underperforming?

  • What percentage of the marketing budget should be spent on paid ads?

  • How can marketing optimize cost per lead and other customer acquisition costs to improve ROI?

How to calculate marketing ROI?

The calculation of marketing ROI, like any other ROI, involves the cost and gain of investment on a given initiative or in a certain period of time. This simple formula for calculating marketing ROI helps you in your audit:

Marketing ROI Talon.One

The formula looks quite simple and straightforward. However, there are other variables that make the marketing ROI measurement a bit challenging. These variables include:

  • Investment of staff time: Calculating the cost of a certain promotion marketing campaign is not a hard task. However, we also need to consider human resources that developed and worked on the campaign.

  • Calculation of incremental revenue: For marketing, incremental revenue is defined as the revenue that wouldn’t have been earned without a particular marketing initiative. For example, retargeting campaigns where inactive customers receive push notifications, etc. create incremental revenue.

  • Measurement of lag time: This is the most important challenge for measuring marketing ROI. Investment in marketing efforts does lead to immediate effects on sales and profitability. However, most marketing investments take longer to show their real impact on a company’s financial performance. On top of that, some marketing efforts aim to increase brand awareness and brand knowledge, helping leads/prospects move along their decision journey rather than make an immediate shopping decision. 

How to increase marketing ROI?

Marketing departments always look for ways to improve ROI in order to show the efficacy of their efforts and the tangible influence of their programs and campaigns on the financial success of the business. The following tips and insights help you increase your marketing ROI:

  • Be specific in your targeting. In order to spend your budget as efficiently as possible, you need to make sure your message reaches the right target audience. There are many marketing channels available to you but not all of them work for your business.

  • Use customer referrals. Implement referrals to grow your promotion marketing, and you will reduce customer acquisition costs, increase marketing ROI and drive product sales and customer engagement. Retention rate and lifetime value for referred customers are significantly higher than other customers.

  • Embrace hyper-personalization: Hyper-personalization is when we decide to go beyond basic customer data, pulling from real-time and behavioral data to deliver highly relevant, individualized messages. Hyper-personalization increases marketing ROI and reduces marketing costs in the long run.

  • Build a strong community of loyal customers. Loyalty programs help you engage with customers who are willing to establish win-win relationships with your business. However, you need to differentiate your loyalty program from legacy programs in order to give your customers compelling reasons to stay with you.

Our white paper, “Talon.One’s Definitive Guide to Customer Loyalty,” is a comprehensive guide to implement a successful loyalty program that is capable of increasing your marketing ROI.

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