In the modern business arena, measuring the effectiveness of marketing activities and optimizing funds spent on them becomes paramount. It is in this context that the term “Marketing ROI” appears: return on investment in marketing. In this article, we will discuss what Marketing ROI is, how it could be measured, why it may be difficult to measure, what are the benefits of its measurement, and how one can improve his Marketing ROI.

What is Marketing ROI?

Marketing ROI is an indicator that defines the effectiveness and profitability of marketing. It measures the amount of profit or value a given marketing investment generates against its cost. Thus, the ultimate goal of Marketing ROI is to assess whether marketing spend is profitable and drives increased sales, profits, and brand equity.

How to measure marketing return on investment?

Measuring Marketing ROI might be a complex process, requiring the right tools and gathering precise data. There are many ways to measure Marketing ROI; only some of the important ones are discussed below:

• Setting up goals and success metrics: First, define the marketing goals and success metrics that will be measured. Common examples are revenue, profits, new customers, conversions, or shopping cart value.
• Marketing Tracking: All marketing activities, including ad campaigns, e-mail marketing campaigns, social media campaigns, influencer campaigns, etc. Analytics tools could help in tracking and analysis of these activities.
• Marketing Cost Calculation: Estimate a rough calculation of all expenses incurred in your marketing efforts, such as advertising campaigns, salaries of employees, marketing tools, outsourcing costs, etc.
• Return on investment calculation: Once you have gathered your cost and performance data, you can determine your Marketing ROI. The easiest formula is to divide return on investment with cost of the investment, times it by 100 to have it in percentage form.

Why marketing ROI can be hard to measure

Measuring marketing ROI can be a problem and tricky. Here are several aspects which may make measuring marketing ROI challenging:

• Complexity of the buying journey: The modern customer uses multi-channels and several brand interactions before making a purchase. Thus, customers can be exposed to hundreds of different marketing activities, making it very hard to clearly attribute the success of a sale to certain activities. Advanced analytics tools and attribution models are needed to precisely understand how each marketing activity has contributed in an omnichannel purchase path.
• Long-Term Marketing Effects: Marketing activities oriented towards branding and customer loyalty are long term and very hard to measure in the short term. The fact that all the effects associated with these actions have to be waited upon makes it very tedious and time-consuming.
• Extrinsic factors: There may be other extrinsic factors in play such as changes in competition and market trends and changing customer preferences, all combining to impact the marketing results. Some of these can quite be difficult to control or factor in when one needs to measure marketing ROI.

Why measure your marketing return on investment?

Measuring the marketing return on investment is very critical for several reasons:

• Effectiveness assessment: Measuring marketing ROI will tell you which of your marketing activities brings the most effect and which one is most profitable. This gives you the chance to evaluate and thus optimize the marketing strategy for better use of the available resources.
• Return on investment in marketing helps justify budgeting for it. When a company is able to prove that marketing creates value or develops growth, then it becomes easier to convince or gain further investment for these purposes.
• Accountabilities and measures of marketing ROI always go hand in hand. Every investment that is made in the marketing activity needs to be assessed for an appropriate return. This further aids in communication and managing expectations internally within the marketing team.

How to improve the return on investment in marketing?

Several strategies can improve your marketing ROI:

• Personalization and Segmentation—results are far better if you segment your target audience based on needs and preferences and then tailor accordingly. Personalized marketing campaigns, based on data analysis and customer profiling, can increase engagement and effectiveness.
• Testing and optimization: Additional testing of the various marketing strategies and tactics, and systemic optimization of activities in relation to collected data, may help adapt the strategy to the real preferences and behavior of customers. In other words, the continuing improvement of marketing activities leads to better ROI.
• Focus on High-Potential Channels: Use data from your marketing channels to establish those that realize the most results. This focus towards high-potential channels brings a huge difference in deriving better ROI.
• Conversion process optimization: Analyzing the process of turning leads into customers can help you improve your marketing ROI. Steps to enhance user experience on the website, purchase procedures, and tracking of user activity pinpoint areas for improvement.

Measuring marketing effectiveness in terms of return on investment is crucial and ensures that resources are being used optimally. While this might be quite challenging due to the intricacy of marketing activities and external factors, there are methods and tools that can help in this process. It will enable better budget allocation, justify investments, and enhance accountability and continuous improvement of the marketing strategy. You can improve efficiency and get better ROI through segmentation, personalization, testing, optimization, and focusing on channels with a good potential of improving from their current standing.