Understanding ROI - Return On Investment

It is not enough to just market your products or services. You need an effective way of measuring how well an investment is performing. This is called the Return on Investment (ROI).

What Is ROI?

Investopedia defines ROI as:

“A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio”.

How to Calculate ROI

Eventually, you will see your ROI in the form of additional sales, but how do you measure what is ROI in marketing?

A simple way is to try a marketing ROI calculator. There are several available online and you can find one of them here.

For every dollar you spend on marketing, you should be getting more than a dollar back. Sometimes the ROI will vary depending on the marketing method. For instance, Profitworks has calculated the average ROI for SEO is $2.75 for every $1, while the ROI for email marketing is much higher at $44 for every dollar spent, according to the Direct Marketing Association. While opinions on what makes a worthwhile ROI will vary, marketers generally consider 5.1 as a good ROI.

What Is ROI in Marketing?

Your ROI for marketing will involve a mix of methods. This might be a mix of:

  • Email marketing
  • SEO
  • White papers
  • Case studies
  • Inbound marketing
  • Press releases

Recent research from LinkedIn shows that 70% of digital marketers do measure the ROI of their campaigns. However, many of them make the mistake of measuring it too soon. LinkedIn’s The Long and the Short of ROI study interviewed 4000 B2B marketers. The study found that most marketers (77%) were measuring their ROI in digital marketing after just one month. Yet the average B2B sales cycle lasts six months or more. So, measuring the ROI of your digital marketing campaign too soon is akin to not measuring it at all.

Another core finding was that digital marketers used key performance indicators (KPIs) as a measurement. However, KPIs only show the short-term results of your marketing and not the overall ROI.

So how do you measure your ROI in digital marketing? There are a good number of different metrics that you could include in your ROI. However, Zest Digital suggests concentrating on two of them: your traffic and conversions.

To simplify things further, there are some basic formulas you can apply to find out the ROI for your business. To make things even easier, you could use a marketing ROI calculator. You can see examples here.

Conclusion

Understanding the answer to the question “what is ROI” as it applies to your business is essential for success. It allows you to see which areas of your marketing are the most effective. You can then concentrate on those areas. Don’t forget to track your ROI over the long term to get a detailed picture of what works and what needs to be tweaked for your particular business.

Understand the metrics and gain a clearer picture of the effectiveness of your marketing efforts with SharpSpring. To find out more or to request a demo, visit our website today.

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