As the holiday campaigns come to an end, most marketers will want to figure out how effective their campaigns were this year, and most importantly, how they can improve for the next year.
If that's you, then you'll need to first measure the Return on Investment (ROI) of your marketing efforts. According to Salesforce, improving marketing ROI ranks as a top priority for marketers worldwide, making it a very important metric to track.
What is ROI?
ROI is defined as the profit obtained from a specific marketing initiative divided by the amount of money spent on it. It can be expressed as a ratio (5:1) or as a percentage (500%).
ROI = (REVENUE - INVESTMENT)/INVESTMENT
ROI is so important because it is not a marketing metric, but a financial one, giving you an insight into how your efforts are impacting the bottom line. Therefore, ROI can be used to report on the success of your marketing campaigns using a language that the finance and executive teams will understand.
However, unlike what most people might think, it is not an easy number to calculate.
Why is ROI difficult to measure?
Although it has a straightforward definition, ROI can be quite a complicated metric to calculate. On average, it takes at least 7 touchpoints for a customer to purchase a product, and if each touchpoint is different (email, social media, website visit, etc), it can actually be quite difficult to determine which channel actually was responsible for the purchase. Because of this uncertainty, and the increasing pressure on marketing teams to demonstrate the results of their campaigns, most marketers end up calculating ROI the wrong way.
When calculated properly, ROI is an effective way to measure your campaign performance. You can get insights into which channels were driving the most sales, and by combining the analysis with other KPIs (such as Click through Rate, or Cost per Click), you can make better decisions, and ultimately get higher budgets.
On the other hand, a poorly calculated ROI leads to more confusion, since it doesn't provide a right reading of your campaign's impact. This can lead to you making wrong decisions, or worse, not actually knowing what to do next.
The Right Way to Measure ROI
As I mentioned earlier, measuring ROI can be quite hard, especially if you have your marketing data spread out in multiple locations. Tracking down performance data across multiple spreadsheets can be a real nightmare, leading you to abandon the attempt, or worse, to calculate it poorly. Therefore, having a centralized place to store your data, in like a CRM is a great starting point.
Today we'll focus on calculating the ROI for a holiday campaign, for example.
Like we saw earlier, the actual formula is quite simple:
ROI = (REVENUE - INVESTMENT)/INVESTMENT
The investment is the easiest part. For a specific period of time, it represents the amount you spent in your campaign (both in terms of external expenses as well as the employees' time).
The revenue is a bit trickier.
To correctly measure the revenue, first select the revenue streams that are affected or directly influenced by the campaign. Then select a period that is at least as long as your average sales cycle for a product.
For example, if your sales cycle is usually 6 months, then any period shorter than 6 months will not reflect an accurate measurement (even if you only ran the campaign for 1 month), since the leads generated by the campaign won't have gone through your full sales process yet.
If you only report on the amount of leads generated during this time, as a way to rush the results, it can be misleading, as you have no certainty how many leads will purchase the product during the regular sales cycle.
Having the correct timeframe is key to a good ROI measurement. According to LinkedIn, most marketers utilize the wrong metrics and time to report the success from their marketing campaigns. Some people report Cost per Click, or Click Through Rate, instead of revenue, but these aren't financial indicators and shouldn't be used to report ROI.
Say you're launching a video holiday campaign. For the investment portion of the ROI, you would add all the production costs, as well as calculate the allocated amount of time from your employees, their rate per hour, and any distribution costs for the campaign.
Investment = Production Costs + Employee hours * $/hour + Distribution Costs
Then, calculate the revenue that came from the products being promoted, since the start of the campaign until the end of your sales cycle. Since the videos have a unique tracking URL, your CRM will be able to log the number of leads who came from the campaign and track when they made a purchase, giving you a real overview of the impact of your campaign.
Revenue = Sum of all revenue from channels during your average sales cycle.
By tying your revenue to your sales cycle, you'll be able to accurately calculate the ROI from your marketing efforts and properly report to stakeholders the performance of the campaigns. This will make you a more effective marketer and will get you more buy-in from stakeholders for your future campaigns.
If you'd like to learn more about how to create a video strategy across multiple platforms to grow your business, check out our Ultimate Guide on Video Lead Generation, which walks you through a step-by-step process to create high-converting videos for your business.
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