How to calculate marketing ROI

Published 4 Jan 10

Web Marketing Return On Investment (ROI) is all about getter better results from your marketing spend

Having focussed on marketing ROI for over 20 years, it is easy to assume that everyone knows how to calculate marketing ROI. However, it is clear from talking to customers and prospects that few people measure marketing ROI and most do not understand how to calculate it.

Simply, marketing ROI is the additional net margin from your marketing activity expressed as a percentage of your marketing cost. It is used to help you compare the effectiveness of one marketing activity to another. Once you have done this you can focus on investing in marketing activities that generate the best return for your business.

An ROI example

Let's suppose:

• you are selling a product (or service) at £200 a unit
• that the cost of the product is £100 (50%)
• that other selling and distribution costs account for £20 (10%)

The profit from each unit sale is £200 less £100 product cost, less £20 selling & distribution costs = £80 (40%).

Now let's suppose you put £2,000 into a marketing campaign that generates 30 sales with a profit of £80 each = £2,400 for the campaign. The return from the marketing campaign is £2,400 less the campaign cost of £2,000 = £400.

In this simple example, the marketing ROI is the £400 return / £2000 marketing campaign investment and equals 20%.

In the real world...

For most companies, just following the simple example above would be valuable and help identify which marketing activites are working and which are not. However, the ROI analysis would be even more powerful if time was taken into account e.g. a direct mail campaign may deliver results over a 3 month period. However, an email campaign or a Pay Per Click campaign may deliver the same ROI but deliver it much faster e.g. over 1 week rather than 12 weeks.

Ideally the campaign results should be tracked over a longer period, than just the first sale. It may be campaign A delivers more repeat sales over a 6 month period than another campaign.

Learning for companies big and small

• as a minimum, do simple ROI campaign analysis to find out what's working and what isn't

• move onto analysing results over a longer period to calculate a more accurate ROI
• if you don't have the time or expertise to do this, find a Marketing ROI expert

Added by: peterh

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