MROI

INTRODUCTION

When it comes to measuring the value of business marketing campaigns, many businesses are comfortable settling for the fact that their marketing deliverables (website, printed materials, SEO campaign, TV commercial, etc) met their satisfaction, were delivered on time and are getting used to market their business products/services. But what if there were a way to calculate marketing ROI (MROI) for each and every business marketing campaign? We will explore “what is MROI” and other essential questions that will help your business focus attention on maximizing your return on every marketing investment.

WHAT ARE DELIVERABLES IN MARKETING?

Deliverables are often what marketing agencies and businesses alike tend to focus their energy and attention on. This is because deliverables are easy to measure. Did our agency finish and activate a beautiful and well functioning website? Was our new booth and signs delivered to the convention on time and within budget? Deliverables are products needed for marketing. The TV ad that you want aired for the next few months. The ad spend schedule for the TV station outlining when our ads run at what times and frequency.

Deliverables fall under the category of second-order ROI. They focus on the completion of projects rather than on their marketing outcomes. They get measured because they are easy to measure, they are important and they are exciting and attractive. The only problem is that deliverables don’t tell your business anything about the financial outcome of a campaign.

A deliverable based response to a friend who asks how your business marketing campaign turned out would sound like

this, “The Convention booth was a great success, it arrived with all of our signs, printed materials and swag in plenty of time for our team to set up. Everything, the colors, logo and materials looked fantastic and were just what we wanted!” This response reveals that the marketing agency did a great job delivering the agreed upon goods and services. You have shown that you can answer the question, what are deliverables in marketing?

But the question still remains, how did the campaign work? How many potential customers did the booth attract, how many email addresses did you get, how many people have used the QR code provided in their brochures to go to the tracked website page? Even more importantly, what Sales-Qualified Leads (SQL) did you achieve and did they meet your projections? What kind of bump did you see in website traffic, inquiries and/or overall sales? These questions get to the heart of what really needs to be measured in order to determine marketing return on investment (MROI).

WHAT IS MARKETING ROI?

MROI = (BUSINESS SALES FROM MARKETING - MARKETING INVESTMENT)/MARKETING INVESTMENT

This equation will be further broken down in the second part of this publication. For marketers the challenge they frequently encounter is how to consistently define and put numbers to the variables within the equation. They need to know how much they spent on marketing and how much money they made in sales of products or services.

Beginning with marketing investment, we need to decide what must be included? If we continue with the convention campaign, what needs to be included? Certainly the complete cost of the marketing agency’s work for the event. Creative work, printing costs, delivery, whatever went into producing the necessary materials. Also a prorated share of the company’s FTEs for the hours they took to set up, take down and staff the company booth, pass out brochures, collect email addresses, answer questions, etc. What about meals for the meetings you had with the agency? What about per diems for your staff? It can be difficult to know what should count and what

shouldn’t. But it is not hard to understand how each additional cost will raise the denominator and therefore lower the ROI.

The more difficult variable to determine can be the numerator or the business sales from marketing. Tracking revenue seems like an easy way to determine business sales. But do you measure as one-time revenue or as lifetime value (LTV) of a new customer? If you are measuring services then bookings value is a good measure, but tracking actual revenue from those bookings; whether using a formula based on previous data, following up on true sales or a combination is necessary.

How do you measure further up the pipeline? What about opportunities? Positive impressions? Brand awareness? For every step you go further up the marketing funnel, your numbers are less tangible. Even though these marketing activities are vital influences of future revenue they do not provide quantifiable data and should not be included when you calculate marketing ROI.

FORMULA FOR MARKETING ROI

[(VALUE OF BUSINESS SALES - COST OF MARKETING SPEND) ÷ COST OF MARKETING SPEND] X 100.SPEND) ÷ COST OF MARKETING SPEND] X 100.

What most businesses and marketers struggle to do consistently is define and capture the data they need to complete all of the variables in the equation. We can parse the formula a bit by breaking the equation down into its parts. Let’s start with the easier of the two variables:

COST OF MARKETING SPEND

The easiest piece of the formula to determine is the cost of marketing. If your business uses a marketing agency you can look at their bill. If you do it in house you will have to think about what should be included? If you think of a digital campaign, should the media buy be included? And the creative agency that created the content used in the campaign? Yes, yes. Do you include a prorated share of the contracted content writer? How much time did she charge for, and what is her hourly rate? Do you include

VALUE OF BUSINESS SALES

Revenue from sales is a clear indicator of the value of a campaign to the business. Determining whether to measure onetime revenue or customer lifetime value (LTV) will require different data driven calculations. The simplest and clearest is overall sales. Measuring bookings value can also be a good measure but to determine revenue accurately will require a formula based on an average conversion rate of previous bookings to sales.

Pipeline? Opportunities? Impressions? Brand perception? These are valuable intangibles within the marketing funnel. And although the

a prorated share of the company FTEs? What about corporate overhead? Meals for the meetings you had with the agency?

Should you include a portion of the SEO optimization you have done recently to make the campaign more productive?

When determining costs it can be difficult to know exactly what is included and what is not. What you need to remember is that every additional expense lowers their profit and adds to the denominator which lowers the overall marketing ROI.

future sales numbers will remain nebulous, we know that these activities do influence overall revenue down the road. However, in the end it is best to stick with the measurable results and try to focus marketing targets on overall measurable ROI.

If your marketing campaign led to an increase in sales of $50K and the whole marketing spend was $4500, this would mean that your marketing ROI was:

[(50,000 - 4500) ÷ 4500] x 100 = 1011% MROI - a very healthy ROI that you will likely want to repeat!

DOES YOUR MARKETING JUST PRODUCE DELIVERABLES OR DOES IT IMPROVE ROI?

Businesses and marketing agencies can both learn to use the value of calculating MROI. It is no longer good enough just to be happy with the quality and timeliness of your business’s marketing deliverables. It’s not good enough to plan and carry out a campaign only to wonder what the value of your marketing efforts were. Marketing agencies can learn to calculate marketing ROI for their business marketing campaigns by collecting all kinds of data on each campaign and crunching the numbers. Over time they will get good at accurately predicting their target ROI for

almost any campaign. From that point they can even use target sales projections to determine each business’s marketing spend budget as well.

Whether your business or your marketing agency does the calculations (or preferably you both do your own calculations and compare), the end result is a marketing budget for a campaign that will produce an expected MROI. By identifying the exact financial targets and ROI targets, it is simple to calculate your campaign’s target marketing budget.

EXAMPLE

A heating & cooling business has identified average conversion rates from their pipeline and their bookings. Now they want to determine what they can likely predict for business value. They have discerned that they have a 12% conversion rate from pipeline to revenue, and 92% from bookings to revenue. This translates to:

$1,000,000 of revenue = $1,000,000 of business value

$1,000,000 of bookings = $920,000 of business value

$1,000,000 of pipeline = $120,000 of business value

If they spend $100,000 in marketing dollars to generate $1,000,000 of revenue or bookings they have made a great investment. But if they spend that same amount to generate $1,000,000 of pipeline, then their investment is really bad, because

their historic data tells them that the best they will do is make $20,000 after their marketing costs. And even that revenue is not guaranteed.

If marketing agencies place importance primarily on producing their marketing deliverables on time and to their clients satisfaction then it is easy for the financial value of their marketing campaign to become fuzzy. And while all results do not have to be financial, they should all be able to demonstrate some benefit to a measurable ROI.

Campaigns can be designed by your marketing department or your marketing agency that will meet the financial target while also staying within the appropriately-sized budget. Although this is not the common reason for marketers to calculate MROI, using this method to get to budgets will make the industry much more transparent and effective.

SUMMARY

When marketers focus on deliverables and measure all of the numbers they can, rather than the ones they should, they have a tendency to focus on secondorder metrics (impressions, views, likes, downloads, attendees) rather than bottom line financial returns. While we agree that building brand awareness and getting positive publicity is good, what really matters to business clients is whether their marketing efforts produce tangible financial value for their business.

When marketing ROI is grounded in financial targets, marketing departments can better justify their benefit within the business while marketing agencies can better communicate the real value of their marketing to potential clients. This kind of communication only serves to build credibility when making budget requests and explaining results. And it is achievable, but it may require looking at calculating MROI in a new way.

BRASS TACKS ANSWERS TO: HOW DO YOU CALCULATE ROI IN MARKETING?

INTRODUCTION

When discerning your business’s true marketing return on investment (MROI) you may want to include a number of measurables that will help to justify the marketing money spent. Some of these measurables are certainly important elements of a marketing campaign; things like brand awareness, contacts, website traffic, social media interactions or email sign-ups. They do not factor into calculating marketing ROI unless they result in sales/income for the business.

Flipping houses has become a popular DIY job for a lot of Americans who like buying rundown homes, fixing them up and then reselling them for a profit. These entrepreneurs are very focused on their ROI because they can’t afford to lose money on an investment property. A simple ROI example for this industry could look like this:

Buy a fixer-upper house: $120,000

Fix it up: $ 50,000 (supplies, construction, loan payments)

Costs to sell the house:

$ 7,500 (commission, loan payments)

Total cost: $177,500

It is not difficult to see what the new sale price on this house will need to be in order to glean a positive ROI. Given the time and sweat equity poured into a project like this it will be important to sell this house for at least $200,000. At that sale price the ROI will be $22,500 or 12.7%. Of course selling it for more would result in a higher ROI.

Although this simple example of ROI has very fixed and easy to determine costs and sales numbers, it provides a clear path for understanding, how do you calculate ROI in marketing? In any business venture the actual costs of marketing can be hard to estimate accurately ahead of time. But by doing the research to determine probable costs, leads to conversion rates, conversions needed, average return on sales, etc., your business can go a long way to ensuring that your marketing dollars yield a positive ROI every time (or almost every time).

FORMULA FOR HOW TO CALCULATE ROI FOR MARKETING CAMPAIGNS

In order for this formula to be useful for your business when it is calculating marketing ROI, let’s identify several important marketing terms frequently used in data collection:

Number of Impressions: How many people laid eyes on your ad? If they see it your ad can leave an impression, even if they don’t do anything.

Number of Responses: How many people clicked on your ad and went to your landing page, visited your website, gave their email address, etc.?

Number of Leads: How many of those responses converted to leads?

Lead-to-customer (conversion) rate: What percentage of leads convert

to customers? When 15 out of 100 leads become customers, your lead to customer rate is 15%.

Average sales price: What is the average price of your product? Averaging is helpful especially when there are discounts available or prices vary for other reasons. If you work with clients it is important to determine the average contract amount.

Number of Sales: How many sales at your average price point were made from the ad? Marketing costs: How much was spent to create and promote your marketing campaign? Factor in all your costs including ad spend, hourly wages and # of hours for people working on the project and/or costs to produce ads.

[((NUMBER OF LEADS X LEAD-TO-CUSTOMER RATE X AVERAGE SALES PRICE) - COST OR AD SPEND) ÷ COST OR AD SPEND] X 100.

MEASURABLES THAT DON’T IMPACT ROI

It will be tempting to consider other nonfinancial elements of your marketing strategy when determining a campaign’s overall success. But attempting to determine the benefits of new followers

or likes on social media, increased traffic on your website or intangibles like greater brand awareness and trust with your customers is not a measurement of ROI.

These elements may indeed have a long term effect on sales, customer relationships and overall brand growth which is of course important. However, because these factors do not impact your monetary return on investment, they are not included in ROI.

Using the above Formula for Marketing ROI, let’s look at examples of ways your business can learn to calculate how much money should be allocated to marketing budgets for specific campaigns ahead of time in order to produce the MROI you desire.

EXAMPLES OF HOW TO CALCULATE ROI FOR A PROJECT IN A MARKETING CAMPAIGN

BLOGS AND NEWSLETTERS

You might be surprised to know that about 80% of marketers who blog recognize a positive ROI through this inbound marketing strategy.

But writing content for blogs and newsletters still costs your business time and money. For those who include them in their marketing strategy, it is important to calculate all time-related costs, production costs and promotional costs as part of your total budget. Time related costs involve the number of employee or contractor hours needed for the project, times their hourly wage(s).

An example of this is a contracted copywriter who gets paid $50 an hour and takes two hours to write a new blog post. The total time related cost will be $100 in labor and any costs for promotion must also be added.

By linking your blog to a landing page, you can use a tracking URL to identify how many visitors to that page have come directly from your blog. When you track these visits, leads and customer conversions through a blog post or newsletter article, it is easy to measure the effectiveness and efficiency of your strategy. If the created content also

generates ROI because the blog post is about a new product and is linked to a landing page where people can purchase the product, then you can calculate MROI based on sales from that landing page.

If MROI is low then you can determine whether writing is poor, creation time is too long or something else might produce better results and adjust your marketing strategy.

EXAMPLE:

A non-profit focusing on supplying safe water to rural Third World nations wants more donors. They produce four blog posts about the specific ways they are meeting the water needs in four different countries where they have projects. Each blog includes a tracking URL linking to a landing page that invites readers to donate to their organization and help them expand their efforts.

It cost them $600 to have an employee write the blog posts using SEO keywords, $100 to edit them and make them SEO and user friendly and another $100 to promote them. Four weeks after the last blog post they had received 250 inquiries and 100 donations through their link. This included 70 new donors, 30 of which

made pledges for monthly donations. The average donation was $100 per donor.

Here’s how to calculate marketing ROI for a project like this using our formula:

That kind of rate of return would be fantastic for a non-profit or for any business and they would likely want to continue with their strategy. If they like the strategy but want to test other ways to increase ROI, they could use video footage from previous in-country projects to create a video post on their website and/or social media and compare their overall MROI.

VIDEO MARKETING

Incredibly more that 80% of marketers report that video has produced strong ROI for them. No matter what type of content marketing you choose, there will be a time and money cost for producing these videos. Capital investments to buy or rent film equipment and/or editing software may be necessary and must be counted in your MROI.

Costs will include writing a script, producing your video to marketing quality, paying for the cost of a film crew,

equipment, lighting, sound, editing, actors and/or narrator and promotion.

With so much going into production it will be very important to measure your video’s effectiveness. If you upload your video into social media platforms, be sure to include a tracking URL in the post caption that takes interested viewers to a unique business or a specific product’s landing page. This will allow you to track exactly how many visitors were drawn to the page by your video post.

EXAMPLE:

The same non-profit from the first example decided to try another marketing method as a comparison. They had plenty of digital footage from projects they contracted recently in three different countries. They decided to make three 8-minute videos showing the situations of the people in these three villages before, during and after their projects. They then posted these videos on their social media accounts with links to landing pages just like they did with their blogs.

Their costs were, $300 to buy video editing software and $300 to write the scripts, $500 for a narrator voice over and another $800 in labor to produce the videos from the digital footage and add a few graphic visuals to reveal statistics for the three countries and to break down for the viewers how and where their donations get spent. Over

the course of a few months in circulation, these videos got 8,000 views, resulting in 4000 inquiries to the landing pages, 800 donations (500 of them new donors) and an average donation of $75.

Let’s use the formula to determine how to calculate marketing ROI:

[((4000

Since they already had the footage from recent projects their costs were very low and their MROI was very high. They will likely want to repeat this effort but will also need to figure in the costs associated with sending people on the trip, costs for the video recording equipment and other labor costs. Depending on the results they will likely want to repeat the process for each country they do projects in.

x 0.2 x $75) - $2100) ÷ $2100] x 100 = 2757%

PAY PER CLICK (PPC) CAMPAIGNS

Pay-per-click works a lot like it sounds. You pay a fee every time someone clicks on your ad. Even when clicks to the ad don’t lead to sales, you get charged. For this reason is it important to monitor your ROI on any and all PPC campaigns after you launch them. Google tells its advertisers how great their ROI is, but when PPC campaigns go unmonitored or get mismanaged they can end up

wasting a lot of money for little return.

Fortunately there are tools available for small business owners to help with PPC campaign management. These will also cost you some advertising dollars, but will likely help to keep the campaign on track and your ROI strong. Here’s an example of how this works using the ROI formula to track your ad’s performance.

EXAMPLE:

An online Heating & Cooling store uses a PPC ad to raise awareness for a new line of ductless air conditioners that are room-sized and cost $2,000 apiece.

They ran two campaigns to test the results and in their first campaign they did not reveal the price while in their second campaign they did reveal the price. Their total ad spend for the first ad was $1,300 and they received 250 clicks, of which 7 of them put the item in their cart and two purchased. During the second campaign, which included the price, they spent a total of $1200. They attracted 230 web visitors, 14 put the air conditioning unit in their cart and six bought it.

The heating & cooling business used the formula to compare how the different PPC ad scripts changed ROI:

First Campaign: [((7 x .286 x $2000)$1300) ÷ $1300] x 100 = 208% ROI

Second Campaign: [((14 x .429 x $2000) - $1200) ÷ $1200] x 100 = 901% ROI

Using these comparable PPC campaign results, the business concluded that price transparency is more effective at attracting qualified leads to click into their ad. Part of this could be because price transparency weeds out the simply curious which in turn lowers the cost of paying for clicks by people who can’t afford the air conditioning unit.

EMAIL MARKETING

With all of the new fancy methods of advertising it can be easy to think that email marketing is no longer effective. But email is still very effective for a lot of businesses, especially those who have a long mailing list of present, potential and previous customers. Targeting a specific and well crafted ad to people who are already somewhat familiar with your business and products can yield excellent results and a high ROI.

It is really important to use a tracking

URL on your ad so that you can track the results of people who opened the ad, people who went to the landing page, added to their shopping cart and actually purchased. Some kind of way to track those who bought in store as a result of the ad, coupon with a tracking URL (printed or shown on their phone) is a great way to track in store purchases.

This is one way to show how a business might measure their ROI with email marketing.

EXAMPLE:

A local hair salon provides a weekly e-newsletter for customers and people who sign up on their website. A hair products company pays them $400 to place an ad with a link to a page where they can purchase their latest amazing $25 hair product.

The ad also includes a tracking URL so that the hair products company can track the ads effectiveness. They learn that the email ad sent 95 visitors to their product page and 40 placed the new hair product in their cart while 32 purchased it.

The ROI formula would look like this:

[((40 x .80 x $25) - $400) ÷ $400] x 100 = 100% ROI through the URL

This was not a great return, however they also tracked the sales of the product at the hair salon where they had offered

a $4 (20% off) coupon that also had a tracking URL. Over a two month period (the life of the coupon) the salon sold 150 bottles of the product at the discounted price of $21. The cost was just the discount amount (150 X $4 = $600).

[((150 x $21) - $600) ÷ $600] x 100 = 425% ROI at the hair salon

The combined ROI from their ad in the newsletter netted the hair products company a handsome 525% ROI from this one hair salon. Based on this information is it likely that they will continue to place email ads in that newsletter and find other salons with extensive email lists to expand their sales even more. Continuing to track the ROI of each campaign will help them determine a good frequency and help them see if people tire of the ads or continue to purchase their products.

TARGETED SOCIAL MEDIA PROMOTION

When a company already has a following that regularly uses social media, like Facebook, Twitter, or Instagram, that company has a great opportunity. They can boost one or more of their posts and get it promoted on the news feeds of carefully targeted audiences. Most social promotions give you the

EXAMPLE:

An outdoorsy publication wants to build their web subscriptions; they cost $11 a month. The publisher decides to offer a one-month free trial in order to create new leads. Their staff creates a Twitter “tweet” with the free trial offer. Included in the tweet is a tracking URL that takes them to the free-trial landing page. This in house creative work cost $394.

Twitter boosted their posts for five days with a budget of $30 per day. During the five days of the posted boost, the publisher received 130 visitors and 28 signed up for a free trial. Of the 28, six subscribed to the magazine and climbed

opportunity to set a goal, an audience target, a time frame, and a budget. When you track your ROI you will be able to easily determine if your social boost strategy is successful or not and you can identify the kinds of posts that produce the best return.

mountains, kayaked rivers and ate bugs for a year.

Let’s take a look at how to calculate marketing ROI with our formula again:

[(((6 x $132) - (130 x .215 x $11) - $544) divided by $544] x 100 = -10.9%

Because the publication lost $60 and still has to honor the free subscriptions they gave out, they might decide to avoid boosting posts on this platform. If they haven’t given up on a boosting strategy just yet, they might try paid promotion on another social platform next time.

PROFESSIONALLY PRODUCED CONTENT

There are plenty of times when your business cannot be bothered with the time commitment and costs of producing your own branded media. It is at these times when businesses turn to marketing professionals to produce their content for them. Marketing agencies will certainly cost you money. But allowing marketing experts to create and produce your content will keep your team focused on what your business does best. Which

offsets those costs substantially.

Using the ROI formula you will be able to track what you spend for your professionally produced content and see what kind of return on investment it produces. If you have done your own production in the past you can also see how the MROI of a professional campaign compares to the MROI of your in-house campaigns.

EXAMPLE:

A Craft Brewery wants to promote their new line of three fresh-hopped beers to young adult males aged 21-30, but they don’t really know how to best reach this group of people. They contact a local full-service marketing agency to present their idea and get a strategy as well as a rough budget and timeline.

The agency recommends a series of targeted creative ads, one ad for each beer, using cartoon hops characters, prominent logo presentation and brief, fun, quirky storlines to introduce the beers to young adult men on social media. Since the brewery only distributes in a two-state area the agency recommends focusing their social media campaign in specific cities and towns with large populations of young people (college towns, big cities and towns with lots of outdoor activities). They give a three month timeline with measurable results for six months and an overall cost of $75,000.

Since their products are new and they must be sold in stores, restaurants,

bars and pubs, the ROI must be determined based on overall sales minus what expected sales for a newly released beer would be without additional advertising. The average sales for their previous four beer releases over a six month period was $250,000 but was $300,000 for their two hoppier beers (closer to the profile of the new beers).

Sales for the first six months for the three beers were: $400,000, $460,000 and $540,000 for a total of $1.4 million.

They used this formula to calculate their ROI:

[((1,400,000 - 900,000) - 75,000) ÷ 75,000] x 100 = 567%

Besides their boost in sales the brewery also realized they had gained substantial social media traction. With that kind of ROI and the ongoing social media traction they are likely to continue using this marketing agency and focusing their time and efforts on brewing delicious beer.

SUMMARY

Now you have learned how to calculate ROI for marketing campaigns and have a definitive concept and a working equation for ROI when looking to market your business. The reason for using this formula for MROI calculations is to measure the ROI for your business after factoring in the costs of marketing your products and/or services. The goal is to get to the point where, for every marketing campaign, you have a consistent and realistic measure of return before you start your marketing efforts. In other words, you approach your marketing department or a marketing agency with your financial target clearly defined. When you get to this point, each of your marketing campaigns will begin with clear statements of your business’s desired financial target(s). Beginning with what is your desired ROI?

The formula helps your business determine your desired marketing ROI before beginning your marketing campaign. You can also use those numbers to create a realistic financial earnings target and from that also create a budget for your marketing campaign that is a percentage of the earnings based on your anticipated ROI.

BEST PRACTICES FOR MEASURING MARKETING ROI

When your business really understands ROI and tracks it religiously through all of your marketing channels there are many benefits not the least of which is preventing you from spending money unwisely. Although there are some areas of marketing where determining ROI can be tricky, monitoring the factors below will help you get accurate figures in your ROI calculations. This will allow you to confidently fill in your ROI equation each time so you will know for certain whether your campaigns are financially successful:

Time & Cost per hour: How many hours and what was the average cost per hour necessary to create your marketing materials?

Costs of Production: What was the total

cost of supplies, services, software and anything else needed to create your campaign?

Promotional Costs: How much did you spend on promotion? Add it to your total costs.

Page Analytics: You need to include a tracking URL to everything you create for public consumption so that you can determine how much traffic an ad is driving to its product landing page.

Collateral Non-Monetary Returns:

Did your ad increase your social media engagement, boost traffic to your website unexpectedly or boost your business in other ways as a result of your campaign? These kinds of boosts indicate growth in your overall brand awareness

THREE FOUNDATIONAL ELEMENTS OF MROI

Marketing plans and campaigns must yield measurable financial outcomes in the short term. They may also continue to provide value to the business well into the future. When measuring the

MROI of any marketing plan and/or campaign, it will be necessary to apply three foundational elements in order to measure the true ROI of your marketing activities.

EVERY MARKETING CAMPAIGN MUST HAVE A KNOWN FINANCIAL TARGET

It is common in marketing campaigns to try to figure out the ROI after the fact. A much more effective method is to have a known financial target from the outset. You can even use a desired ROI to determine what your marketing budget will be. But this is only possible when your financial target is known. All campaigns have financial outcomes:

revenue. But, by examining where any campaign will impact your funnel and then following your funnel to its end, it is always possible to find a financial outcome. When viewed this way your new logo campaign still has a financial objective, you just have to look farther up the funnel to see when and where your sales increase.

A lead generation campaign will have a financial outcome once your business identifies and creates leads that become prospects, then opportunities and eventually customers. It will be more difficult to discover the financial outcomes of some marketing campaigns. For example, a new logo campaign will be difficult to connect directly to

When calculating a financial target and overall ROI for any of your campaigns, it is important to “look into that crystal ball” and find a path for connecting today’s marketing activities with the financial outcomes that come through the funnel as a result. Which brings us to the second foundational element: time.

MARKETING ROI IS DETERMINED BY THE MARKETING PLAN/CAMPAIGN

Marketing plans don’t follow a fiscal year schedule. Instead, leads, prospects, deals and new customers are always working their way down in the funnel. A certain percentage of your marketing results for the old fiscal year are already measurable and cannot be carried over into the new fiscal year (just like budget expenditures will not carry over). It would be reckless and almost impossible for your business only to execute marketing plans that created value in the current fiscal year.

Different marketing campaigns/plans have different value outlooks and

they understand the importance of investments that will yield a future return. The job of the marketing team is to deliver on the target number of well-qualified sales opportunities that lead to the appropriate percentage of closed deals. This is how the funnel is maintained by campaigns across fiscal years. MROI must be continually monitored monthly and across fiscal years to identify whether target goals are falling short, being met or even surpassed and by how much. Present month results can be presented along with YTD totals and next month’s goals.

EVERY PHASE OF THE FUNNEL IS WORTH THE SAME AS THE FINANCIAL TARGET

Let’s say your business has identified a revenue target of $1M for its marketing campaign. How many sales will you need to close in order to reach that revenue target? What if we think even further up the marketing funnel, How many qualified opportunities will you need in order to close the number of sales you need?

From previous statistics your team decides that you need 25 sales at an average of $40,000 each. And according to sales history your business makes two sales for every five qualified opportunities. If the goal is $1M, then it doesn’t matter where in the funnel you focus your attention you are still focused on making the same $1M in sales. Those 63 qualified opportunities that are necessary to close 25 sales must make their way into the pipeline, be found, cultivated and brought to sale while the rest just filter out.

For this reason the marketing agency

identifies that they need four prospects in order to get one qualified opportunity. This means that 252 prospects are also worth the same $1M. Identifying the target number at every phase of the funnel that will meet your financial target helps to quantify each step of the marketing and sales process.

If five leads will give you one prospect and four prospects will give you one qualified opportunity, and five qualified opportunities will lead to one sale, then 1010 leads = 252 prospects = 63 qualified opportunities = 25 sales = $1 million.

When targets are achieved then every phase of the funnel is worth the final financial target amount. Which is a useful way of identifying the value of each phase of your funnel marketing activities and quantifying them. It will still be crucial to consistently measure ROI in order to identify whether the identified values in the earlier stages of the marketing funnel are holding up.

QUESTIONS TO ASK WHEN CALCULATING MROI

Q: Do you prefer to measure return in terms of revenue or margin? Either measure will work; they will just produce very different ROIs.

Q: How do you measure the outcome? Profit or revenue or ROI, your outcome will be financial. The questions arise

over what is measured, one-time customer revenue, lifetime value, a percentage of LTV, or another measurable. One-time revenue is best when a purchase is likely a one time buy. But if you have monthly revenue deals then determining a share of LTV makes sense.

Q:

What is your target ROI percentage or multiplier?

If you want to see at least a 450% ROI (4.5X) and your financial target is clearly defined, then it is easy to do some backwards math to determine a marketing budget for your campaign. And when you can figure these goals

out you will have a great opportunity to assess whether a campaign will work for you. If reaching your financial target using the implied marketing budget will meet your target ROI then you are ready to move ahead. If not, you should scrap it and rethink your strategic marketing plan.

CONCLUSION

If you have further questions on this topic or are in need of expertise in any area of today’s rapidly changing world of marketing, just go to zo.agency and let our team work with you and welcome you to our tribe! We will happily strategize and work with you to build a marketing campaign that is based on your expected ROI.