How to Measure Return on Investment
In order for marketing companies to prove their effectiveness and secure additional marketing resources, it is essential to measure the return on investment (ROI) of every marketing initiative. There are various ways to calculate ROI and marketers must have a solid understanding of these statistical and financial analyses. MediaPost.com recently explained how to calculate the real return on a marketing campaign.
When it comes to determining marketing ROI, the math is basic but the components may be difficult to decipher. The calculation should measure the revenue generated by the campaign, as well as any marketing-related expenses and the profit margin on the items sold. Unfortunately, profit margin is not always easy to quantify because it factors in the cost of operations. Still, it is an essential element for an accurate calculation.
The simplest calculation comes down to the total campaign revenue multiplied by the profit margin, then divided by the cost of the campaign. This provides a quick, yet solid measure of campaign performance when making basic campaign comparisons or when measuring pilot marketing campaigns. While this basic calculation delivers a general measure of ROI, it fails to consider all of the costs associated with the campaign and the impact of control groups. Both of these components are necessary in determining the actual revenue generated by the marketing campaign.
To attain the most accurate calculation and present the strongest case for additional resources, an advanced method for calculating ROI may be required. This advanced approach should include all of the direct campaign costs, along with all of the costs associated with operating the marketing department. The total of these costs provides the “cost of campaign” figure for the calculation. It is also important to factor in the dollars and purchases generated from both the target group and a control group when making comparisons down the line.
To make the advanced ROI calculation, begin by figuring out the number of sales from the target group that would have occurred without the marketing campaign by measuring the average number of purchases generated in the control group. Then, multiply that total by the average dollar amount of control group purchases. Finally, subtract that number from the total target group revenue. This calculation determines the most accurate campaign revenue because it eliminates the transactions that would have occurred without the marketing campaign, which shows the incremental revenue gain from the higher average transaction of the target group.
By following the step-by-step guidelines above, marketing companies can quickly and easily figure out the revenue generated by their marketing campaigns and show that their efforts deliver real value to their organizations.
To discover effective ways to increase your marketing’s ROI, contact MDG, today at 561-338-7797.
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