Marketing directors know that company CEOs are results oriented. They want to see the return on marketing investment (ROI). But traditional marketing is not an exact science, so too often the marketing director is limited to reporting vague metrics, like “brand awareness,” earned media, and social media “likes.”
Placing your company’s logo with a clever slogan can associate your business with a product or service in the mind of your consumer. But precisely proving the direct impact that traditional marketing campaigns have on any increase (or drop) in business can be murky.
Here are three ways that marketing directors can demonstrate marketing ROI:
1. Make Correlations
One way to show results from a new branding campaign is to compare selected key performance indicators (KPIs) between time periods. For example, did the number of phone calls or appointments increase this year, over the same period last year when you were not marketing?
Advertising a specific product can make short-term results more clear. A bank, for example, might take out an ad in the Sunday paper to promote their fabulous checking account product, and then track the number of new checking accounts that are opened on Monday. A lift in sales can then be attributed to the newspaper ad. If newly opened checking accounts are flat, or drop, then the ad can be revised for the following week and tested for future results.
2. Do the Math
Looking for more concrete numbers? One basic method to calculate marketing ROI is to factor marketing as a part of revenue. Just take the sales growth, subtract the marketing costs, and then divide by the marketing costs.
(Sales Growth – Marketing Cost)/Marketing Cost = Marketing ROI
For example, if sales increased $1,000 and you spent $100 on marketing, then marketing ROI is 900% ((1,000 - $100)/$100)).
Of course there are other factors in addition to marketing mojo that can impact sales. By looking at existing sales trends over time, you can modify this formula to compensate for sales growth that is unrelated to marketing, like so:
((Sales Growth – Marketing Costs)/Marketing Cost) – Average Organic Sales Growth = Marketing ROI
For example, let’s say a company closes $15,000 in sales one month, and they have naturally maintained about 4% sales growth per month over the past year. Then the company runs a $10,000 marketing campaign for a month. The revised calculation looks like this:
(($15,000 - $10,000)/$10,000) = .5, or 50% - 4% = 46%
3. Make it Inbound
Neither of the methods mentioned above, however, prove the direct impact of a specific marketing campaign. Another challenge is that marketing campaigns are often designed to do things other than simply generate sales. Inbound marketing campaigns are designed to generate leads, with the sales staff responsible for closing the business.
In an inbound campaign, the marketer attracts leads to a company website with highly relevant content such as blogs, and converts them into leads with downloadable offers, such as eBooks. For instance, in keeping with our bank example, a website visitor who downloads an eBook about home buying, might be passed along to the mortgage department as a lead. When the mortgage broker closes this lead as a customer, the revenue from this new customer can be directly attributed to the inbound marketing activities that took place.
The loop between marketing and sales is completed when the lead data from marketing is attributed to customer information. This “closed-loop marketing” happens automatically to directly prove marketing ROI when using marketing automation software, like HubSpot, connected to a sales customer relationship management (CRM) software.
Soft marketing metrics such as brand awareness, media mentions and social media followers are all worth considering, but not if your marketing fails to produce leads or drive sales and revenue over time. Inbound marketing can demonstrate conclusive ROI of marketing activities.