With any investment, the goal is to get a return. Businesses investing in marketing are no different, but many struggle to connect their marketing efforts to revenue or cost reduction.
Compounding the problem, marketers have traditionally used advertising speak rather than business language. This failure to translate has been a chief frustration among CEOs and CFOs, as their job is to deploy capital and expect a return.
Why Is Marketing ROI Important?
Before we talk about why Marketing ROI is important, let’s define it. Marketing ROI is a positive return on marketing dollars that supports your bottom line.
Business math is simple: What you get out should be more than what you put in. Too often, we view marketing as a “cost” and not as an “investment.” In fact, for some business models, marketing is THE revenue generator.
It’s hard to imagine a direct-to-consumer company getting any business without a healthy marketing budget. For business models like B2B, return on the marketing investment is calculated by “impressions” or “reach.”
Forgetting to translate tactics and their performance data into material benefits for the client’s business is just bad business and bad investment strategy. Marketing ROI is important because it helps determine if your campaigns are successful and make your business money.
What Should A Business Invest In Marketing?
There is no one-size-fits-all formula for investment in marketing. However, there are a few rules of thumb to consider when you are planning your business budget.
For established B2B companies, you should consider investing 2 – 5% of your revenue goal in marketing. If you are just starting out, consider bumping that up to 6 – 8%. For a business that falls more into the consumer camp (B2C), you should consider between 5 – 15% of your revenue goal; startups should err on the higher side of the range. According to a 2023 survey from Deloitte, U.S. companies are spending nearly 10% of their revenue on marketing. Marketing is an important investment.
How Do You Attribute A Return?
Rather than trying to attribute the entire marketing budget to the entire revenue of the company, calculate return on investment (ROI) one effort (campaign, video, website launch, etc.) at a time.
Every marketing or advertising strategy you create should have an ROI projection built in—you need to define “success” for each campaign before launch, measuring against those projected results as you go.
Have Ballpark Dollar Amounts
Campaign results or key performance indicators MUST be tied to dollar amounts to predict ROI. If your result is more leads, how much is a lead worth to your business? If it’s an online purchase, what is the average online purchase value?
From there, it’s pretty simple; how many more dollars do you project coming out of the campaign than you put in?
Calculate The Whole Campaign, Not Each Tactic
A common mistake when calculating ROI is putting a return value against every individual tactic, ad or execution. Marketing is an ecosystem of awareness, education and reach that should drive toward a goal—not every tactic is meant to directly make money.
Perhaps an ad is designed to make your audience aware of your business or educate them on the advantages of your services. The ultimate goal is for them to take action and convert, but it might not be the goal of that particular tactic.
Rather, calculate ROI based on the bigger campaign—all the tactics deployed over a period of time.
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