How to Assess the ROI of Your Marketing Efforts
Learn how to assess the ROI of your marketing efforts to reduce wasted ad spend and maximize marketing investments.
As a business owner, marketing is your key to growing your audience and bringing in sales. However, you must understand how your marketing campaigns perform to ensure they’re effective and working as intended. That’s where assessing your ROI, or return on investment, comes in handy. You’ve probably heard ROI time and time again, as it’s one of the most important calculations in the business world.
To ensure your marketing efforts are proving effective, it’s important to look at how well your marketing campaigns are performing. Below, we’ll provide a detailed guide on ROI and how to measure it, along with other helpful information that can help you improve your marketing efforts.
What is ROI?
Return on investment (ROI) refers to how much money you earn on a particular investment. When it comes to marketing, it refers to how much money you generate in sales after rolling out a marketing campaign.
A simple ROI calculation goes as follows:
(Sales Growth – Marketing Costs) / Marketing Costs = ROI
For example, let’s say you spend $1,000 on a social media campaign that promotes items on various social media platforms like Facebook, Twitter, and Instagram. You then find that sales grew by $5,000.
Using the ROI equation:
($5,000 – $1,000) / $1,000 = 400%
While this is just an overly optimistic example, it clearly shows how ROI can be calculated after rolling out a marketing campaign. However, it’s important to remember that calculating ROI is often over-optimistic, as it assumes the marketing campaign alone is the only factor that contributed to the 400% increase in sales.
Instead, for a more accurate depiction of how successful a marketing campaign was, business owners should conduct comparison analyses where sales from the business line are compared from before the marketing effort to after. This way, you can determine its true success.
Ways to assess ROI
While the simple ROI formula can tell you a lot about how well a certain investment is performing, there are additional ways you can assess marketing ROI.
A common way to measure ROI is through marketing attribution models, which assess the ways customers came into contact with your products or services. Below are the different ways to evaluate ROI through different marketing attribution models.
Single source marketing attribution
With the single source marketing attribution model, credit is assigned to one touchpoint, typically the first touch or last touch, which refers to the channel the consumer engaged with.
For example, with the first-touch attribution model, credit will be given to the first channel a lead interacts with, such as a blog she clicked on when searching for a particular item. However, this method fails to address any other interactions a lead had along the way to making a purchase.
The last-touch attribution model does the opposite—credit is given to the last channel a consumer engages with, such as an emailed newsletter that directs them to a product to purchase. Even though the single source marketing attribution model can help you assess a marketing campaign’s ROI, it’s considered outdated due to the vast amounts of marketing channels consumers have access to that can lead to a sale.
Multi-source marketing attribution
Through the multi-source marketing attribution model, credit is given to every touchpoint a consumer makes along their journey to making a purchase. The multi-source marketing attribution model will give credit to every stop a lead makes, such as a Google ad, social media post, webinar, and email newsletter. However, one of the major drawbacks of this model is that it doesn’t take into account each channel’s portion of the contribution toward a consumer’s purchase.
With that said, there are several multi-source marketing attribution models you can use to assess ROI:
- Linear: Equal weight is given to each touchpoint a lead makes
- Time decay: Credit is given to more recent touchpoints, as they’re believed to be more impactful than older touchpoints.
- U-shaped: Credit is given to two touchpoints: 40% to the first touchpoint and 49% to the lead creation, with the extra 20% credit given to the touchpoints made between the middle.
- W-shape: 30% credit is given to three touchpoints, including the first touchpoint, the lead creation, and opportunity creation, with the additional 10% given to touchpoints made in the middle.
- Full path: Credit is given to every major milestone a consumer reaches, including the final close, with lower credit given to the smaller touchpoints in between the milestones.
- Custom: Depending on your marketing efforts, you can create your own custom model to assign your own attribution weights to different touchpoints.
The multi-source marketing attribution models explained above offer a more impartial way of measuring and assessing your marketing efforts’ ROI.
Weighted multi-source attribution
The weighted multi-source attribution model is often the most accurate ROI measurement but can be extremely hard to administer correctly. Through this method, the weight given to each touchpoint a consumer makes on their journey is measured by which touchpoint carried the most weight. For example, if a social media campaign brought in the most leads that lead to purchases, this touchpoint will be given more credit than a Facebook ad that garnered only a few leads.
Wrapping up on assessing the ROI of your marketing efforts
Understanding how effective your marketing efforts are is essential as a business owner. The last thing you want is to funnel large sums of money into a marketing campaign that’s not bringing in any leads and sales.
The model you use to assess ROI ultimately depends on the type of business you run, and some trial and error. With that in mind, take time to try out each attribution model to see which one gives you the most accurate ROI numbers. Once sorted through, you’ll be able to determine which channels are performing exceptionally well and which channel might need to be reworked or omitted altogether.
Measuring ROI can be quite a challenge, especially when there are multiple touchpoints within a consumer’s journey. However, carefully analyzing each touchpoint to determine which ones are most effective can help you devise new marketing campaigns to continue growing your sales.