Have you ever wondered why Hollywood did not see a sequel to the Jim Carrey classic, Bruce Almighty? One of the major reasons could be the less than ideal ROI of the 2007 sequel, Evan Almighty.
A good ROI (return on investment) is crucial to evaluating the overall effectiveness of a developed product or service. The ability to deliver goods and services to customers would not be possible without a stellar marketing strategy. The insights gained from marketing ROI information are useful in compiling data-driven strategies to yield enhanced results though improved techniques. In this article, we will discuss some of the specific qualities of a good ROI for your marketing campaign to help ensure that your customers “come back for seconds.”
What is Marketing ROI?
The ROI measurement in marketing assigns profit and revenue growth as a result of marketing initiatives. It represents how much money is generated for every dollar spent on marketing. This allows organizations to measure the impact that marketing has had on expanding revenue in both macro and micro levels. Many use this evaluation to justify marketing budget allocations for current and future campaigns or initiatives.
In broadly economic terms, an ROI is calculated using this formula:
(Gain from Investment− Total Cost of Investment) / Total Cost of Investment
The ROI specific to marketing would then utilize a formula like this:
(Gain from Investment − Total Cost of Marketing) / Total Cost of Marketing
Marketing ROI Benchmarks
Marketing ROI benchmarks can be incredibly useful guideposts in determining the standard of what makes a good marketing ROI measurement. Looking to the past is a great starting place in bettering your marketing ROI. Pay close attention to previous performance by the company itself and those in its related field. Comparing them will provide you with a competitive benchmarking approach.
Competitive benchmarking can be helpful in determining what is a good marketing ROI through a macro lens. It gives you an idea of how and why a competitor is performing better or worse than you. Great marketers can translate this knowledge and awareness into better practices that will help improve their strategy.
AdWords Conversion Rate Benchmarks
Many organizations are utilizing Google AdWords in their marketing endeavors. It helps attract consumers interested in products or services similar to your own. Research conducted by Larry Kim provides benchmarks that showcase some of the conversion rates from Google’s advertisers. Conversion rate data communicates the number of visitors to a website that complete a desired goal.
- Average Google AdWords account: 2.35% conversion rate
- Top 25th percentile of AdWords accounts: 5.31% conversion rate
- Top 10th percentile of AdWords accounts: 11.45% conversion rate
Additionally, Google AdWords has years of extensive data which has informed their reported overall 800% ROI benchmark measurement.
E-Commerce Conversion Rate Benchmarks
The Monetate Ecommerce Benchmark Report tracks e-commerce from analyzing their customer data. Most recently, they have displayed that the average add-to-cart conversion rate is 5.43% in the United States and 7% globally.
Benchmarks are Impacted By Specific Channels
Depending on the channel of marketing used within a campaign, the data used to determine the ROI can vary. Often when dealing with online ad strategies like PPC, ROI data is tracked automatically. With other marketing strategies such as content marketing, it can be a little more difficult to collect data. Determining if blog posts, podcasts, or videos are leading to sales can be complicated. Especially when the content isn’t on or linked directly to a landing page.
Individual Benchmarks are Also Useful
While using a competitive benchmarking approach can paint a picture as to how your company fits or does not fit into the appropriate standard of what a good marketing ROI is, sometimes the data to achieve this is not as accessible as you may think.
Many analysts still encourage companies to take a more individualistic approach. Another realistic way to create ROI benchmarks and goals that are realistic for your company is to look at the return from similar tactics you’ve tried in the past, as well as your current sales numbers.
What is a Good ROI?
In order for a company to reach its target audience with a product, at a minimum it must take into account the cost of making the product and the cost of marketing it.
Assuming that the cost of production (also known as cost-of-goods-sold, or COGS) is 50% of the sale price, we can immediately deduce that a 2:1 marketing ROI is not optimal. For example, if an organizations spends $100 in marketing to generate $200 in revenue with production costs at $100 , the outcome is simply breaking even – an unlikely and unworthy goal of any eager business.
In order to calculate the ROI of anything, you need to have measurements for both the return and the investment. The example above demonstrates that a company’s desired marketing ROI will be largely influenced by the patterns informing its investment. Logically, companies that have higher gross margins (COGS that are less than 50%), can achieve less sales from their marketing before they start seeing profits. Spending money on the right resources for a marketing campaign can greatly impact its ROI. Are you able to drive more revenue with less costs associated with marketing? You might be able to if you can identify the marketing channels that are underperforming for your business and stagnating your chance of scoring an impressive marketing ROI.
Here are some of the components of a marketing campaign that are main contributors to its cost. Keep these in mind to reflect upon the elements that are making or breaking your good marketing ROI score:
- Website setup and maintenance
- Travel expenses
- Design and development costs
- Digital advertising (social and search ads)
- Video production
- Corporate gifts and samples
- Agency and consultancy fees
- Search engine optimization and blogger outreach services
With all of this in mind, strategists agree that a good marketing ROI is 5:1. This ratio sits nicely in the middle of the bell curve. Additionally, an ROI of 10:1 is considered exceptional by most companies.
Challenges Associated with Marketing ROI
Due to the fact that marketing is a long-term and typically multiple-staged process, it can be difficult to determine when to employ a marketing ROI when trying to determine the effectiveness of a campaign or initiative.
For example, the ROI in the initial months of a marketing strategy may be flat or low as it begins to penetrate the target audience. But as time goes on, hopefully the ROI will begin to increase as sales begin to grow, leading to an increase in the cumulative ROI of the campaign. Deciding at what point to measure the marketing ROI can be challenging because of the time period needed in order to yield results, which is unique to each marketing strategy.
Additionally, the marketing ROI measurement presents challenges since not all campaigns are designed around the outcome of generating revenue. For example, many initiatives such as enhancing brand awareness, increasing social media likes, or even advancing the content output rate for the campaign are also relevant. These soft metrics are still useful in communicating marketing impact in addition to more hardly-defined numerical metrics such as an ROI. Despite the positive information that they can contribute, marketing strategies should in their core have monetary yields, as to not completely traverse into the world of Public Relations.
Even though it can be difficult to fully acquire the metrics to calculate an authentic marketing ROI, it is still a worthy endeavor. To make the most of your marketing spend, you need to have some measure of its results. Successful corporations with impressive marketing ROIs have marketers who are seeking to connect the dots between activity and revenue. Implementing a ratio such as a marketing ROI is essential to providing an organization with a motivation for progression. Acquiring a good ratio is fundamental to the overall goal of any corporation: growing the business.
Tips for Improving Your Marketing ROI
Establish Clear Goals
Whether your desired outcomes are strictly monetary, influencing public opinion or a mixture of both, it is vital that marketers establish transparent objectives. Additionally, it is important to make clear the metrics that will be used to measure these objectives. Furthermore, you should have an idea for how you will go about measuring them. Consider implementing a diverse range of methods in addition to traditional numerical sales metrics such as brand awareness surveys.
As mentioned earlier, the ability to determine the worthiness of marketing channels and resources is a crucial skill to getting closer to that good marketing ROI. Make sure to make time to think clearly about what each item in your expense list offers and how it will motivate a customer to purchase a product. Organize these thoughts and let them inform conversations to help develop a great marketing ROI.
Utilize a Marketing Analytics Platform
In order to combat one of the greatest challenges associated with a good marketing ROI, consider engaging with an analytics platform that can help track the metrics that will inform the measurement itself. When using analytical tools, marketers have clear and specific insights to use when plugging these measurements into their marketing ROI formula.
- How do you measure ROI on a marketing campaign?
- What is considered a good ROI?
- What is the average ROI for digital marketing?
- How do you increase your marketing ROI?
- What are benchmarks for marketing ROI?