If you’re here, you’re asking yourself, “what is ROI in marketing?” Or, you’re asking Google. Or, you’re just scrolling through our blogs. Anyways, this blog is all about measuring the return of your investment in marketing (the ROI). If you’re in the world of business or investing you probably understand the basics of return on investment (ROI). It’s a way of measuring the profitability of financial investment. But when it comes to marketing, it’s somewhat more complex.
What is ROI in marketing and how do I measure it?
Measuring the return on investment in your marketing efforts is not always straightforward. In fact, it has its own specific term to separate it from ROI because the way it is calculated is unique. There are two ways to calculate return on marketing investment (ROMI): short-term and long-term.
Short-term return on marketing investment
Let’s take an example where a business puts out ads for a product or service. In this case, the measurement would be considered short-term ROMI. You can see exactly what you’re spending and the result the ads are having. To get down to the exact short-term ROMI, you’d look at the money you spent on the ads, the cost of producing them, the overall increase in sales and the margin of that increase which is directly attributable to your ads and not to other sales effort. After all that, it’s simple. An ROMI of 1 means for every $1 you spend, $1 comes in. Obviously, you want a ROMI of more than 1 because you want to do more than break even, but those are the basics.
But how do you apply that knowledge?
For short-term ROMI, you’re using it as a tool to help inform the specific tactics that are part of your marketing implementation plan (don’t have one? You should!). Not always whether you should implement those tactics in the first place, but specific adjustments to what you’re already doing. Which ads are working, which aren’t, that kind of thing. It can help you adjust the little things on the fly and make sure the things that are done with the express purpose of returning an immediate investment are acting as they should.
However, short-term ROMI is only half of the equation.
Long-term return on marketing investment
This is where things get more complex. Long-term ROMI is less tangible than its short-term sibling, but it is equally as important in every way and in some cases much more important. There are sophisticated long-term ROMI calculations out there, but they are primarily the domain of the world’s biggest consumer-focused companies. In this case, to keep it simple and relatable, we’re going to talk long-term ROMI in the general sense.
When we talk about long-term return, we’re talking about things like brand awareness and customer sentiment and intent. Questions like: does your audience know about you? how do they feel about you? do they consider you in their buying decision? etc. When you’re rebranding, or building a new website, or sponsoring an event, for example, you’re unlikely to see immediate results on your bottom line like you would with an ad spend. In fact, even some ad spends (those with the purpose of building brand awareness, to name one) aren’t going to show a short-term return. But that doesn’t mean they don’t have value.
Strategy is the biggest influence on ROI
When it comes to big projects like rebrands or new websites or smaller projects like sponsorships, swag, and ad spends focused on brand awareness, the ROI is centred on how they help you achieve your business goals, not if they bring in more dollars than you spend within a week. You won’t be able to see the result in ones and zeroes right out of the gate.
That’s why you build a marketing strategy and implementation plan. Rebranding, spending big money on sponsorships or events, or even digital ad campaigns are not one-size-fits-all pursuits. The information you gain from building a marketing strategy that aligns with your business goals will guide you to the right options for your business. The value in measuring tactic-specific ROI is that it allows you to make adjustments to get the most value out of what you’re doing in the moment. It is not there to tell what you should or shouldn’t do, what makes sense for your business goals and your audience and what doesn’t. That comes from your marketing strategy.
Your marketing focus should always be on achieving your business goals, whether they be short-term or long-term, because that is the most important ROI marketing can deliver. To be effective, you need to be strategic, and you need to have a long-term plan. It allows you to understand how everything you do comes together and helps you achieve those goals.
Hopefully, this answered “what is ROI in marketing” and a whole lot more.